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Does UK IHT apply to 401K?
My new client was born outside the UK but has been resident here for 50 years. I therefore believe that inheritance tax will apply to worldwide assets, being deemed to be domiciled in the UK.
He has a number of assets in the US, including a 401K, which I understand to be equivalent to the self-invested personal pension (SIPP) in the UK. UK SIPPs are free from IHT, but would that also apply to the value of the 401K?
What do Taxation readers think?
Query 20,079 – Passerine.
Is company entitled to corporate tax relief?
A client company’s only source of income is its profit share from the trading LLP it is a member of; the LLP carries out medical services. The company owns an electric car used by the director for personal use and for a very small amount in connection with the LLP’s trade – thus a benefit in kind arises for which the director pays the company. The company also incurs accountancy fees for preparation of its statutory accounts and corporation tax return.
I am concerned as to whether the company is entitled to corporation tax relief for the (non-LLP) car costs and accountancy fees given the company doesn’t have its own separate trade or any other activity, other than being an LLP member.
HMRC’s Company Taxation Manual at CTM36510 Step 3 says ‘the company’s share is brought into charge under CTA09/S2 as if its profit share derived from a trade, profession or business it carried on alone. The trade, profession or business carried on in partnership is a separate trade, etc. from any other trade, etc that the company carries on alone.’
Can the electric car costs and accountancy fees be said to be an expense of the ‘separate trade’ that is its LLP profit share? It is my understanding that tax relief cannot be claimed in the LLP computation because the costs do not relate to the LLP so this seems unlikely, and if the company does not have any other trade, then how can it obtain tax relief for these costs? Or can tax relief be obtained in any other way?
Clearly if the company had its own trading income (in addition to its LLP profit share) this would presumably mean that tax relief would be ok, provided the costs were reasonable and commercial when compared with this additional income?
Readers’ comments would be appreciated.
Query 20,080 – Jazzman.
Does the substantial reduction test apply?
I act for a company which is currently owned 50-50 by two individuals, Mr A and Ms B.
They are not married or in a civil partnership but have lived together for the past ten years or so.
They are now going their separate ways and the plan is that Mr A’s shares will be bought back by the company leaving Ms B as the sole shareholder. All of the conditions for capital treatment seem to be met.
There is, however, one point which bothers me. A and B have a ten-year old son. When looking at the substantial reduction test, A and B are not married/civil partners and so are not associated. But does the son change things?
As he is under 18 he is associated with his mother and his father – does that mean that his parents thereby become associated with each other for the substantial reduction test?
If they are, capital treatment is not available. I can’t think that the existence of the son makes any difference but I would want to be sure.
Do readers have a view?
Query 20,081 – Double Checker.
Reclaiming VAT on expenses without UK bank account.
A UK subsidiary of a German company has one UK-based employee who visits customers for the holding company’s products.
The company’s income is commission paid by the holding company; the goods are shipped direct from Germany and the UK company is not involved in the supply of goods. It is registered for VAT in the UK and submits repayment returns, because it has only ‘outside the scope’ income and some expenses related to the employee’s travel, etc.
The problem is that, although it has a UK address, it does not have a UK bank account – and HMRC won’t pay a VAT repayment to a foreign account (except on a foreign refund claim through the 65A system). UK banks insist on UK resident directors, but this company’s directors are all in Germany.
In my view, the employee constitutes a ‘fixed establishment’ for business-to-business services, because he receives and uses input supplies of services for the UK company’s own purposes; the registration is therefore valid, and a 65A claim from Germany would not be permitted. How can this company reclaim the VAT on its expenses?
Query 20,082 – Snookered.
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