.png)
.png)
New limit
In 2011-12, our client incurred a capital loss of £250,000 on the disposal of a quoted shareholding, which was a non-business asset.
In 2015-16, the client had a capital gain of £500,000 which qualified for entrepreneurs’ relief.
In 2017-18, there was a further gain which also qualified for entrepreneurs’ relief of £500,000.
Following the March Budget, we are wondering how much of the entrepreneurs’ relief lifetime limit is now remaining. In our mind, the possibilities are:
- nil – being the £1m limit less the two £500,000 gains;
- £250,000 – the £1m limit less net gains of £250,000 for 2015-16 and £500,00 for 2017-18; or
- £272,300 – as above plus the annual exemptions for 2015-16 and 2017-18.
The legislation at TCGA 1992, s 169N(4)(b)(i) talks about gains being ‘charged at the rate’, which would seem to support the third option. However, HMRC’s guidance in its Capital Gains Manual at CG64125 refers to ‘relevant losses’, which would suggest that only losses on assets that would have qualified for entrepreneurs’ relief (if there had been a gain) can preserve the lifetime limit.
We would be very grateful if Taxation readers could let us have their thoughts on this scenario.
Query 19,535 – Eric.
Sports charity
I act for a sports charity that has been gifted some land by the local council to build a new indoor tennis facility – it will be funded in part by a large donation from an international tennis player, along with a range of grants from central and local organisations.
The trustees accept that VAT will be charged on the construction services supplied for the new facility because there will be membership fees charged for playing and also fees received from guests and non-members on an hourly or daily basis; in other words, business supplies are being made.
As I understand it, there is no scope to register for VAT and claim input tax on the construction costs because the playing fees will be exempt from VAT. But one of the trustees has suggested that a trading subsidiary of the charity should be formed to collect the playing fees. A VAT group is then formed between the charity and trading subsidiary.
The playing fees will then be standard rated (because the trading subsidiary is not an ‘eligible body’ as far as VAT exemption is concerned) and the group registration will mean the charity will be able to claim input tax on the builder’s services.
What do readers think of this suggestion? It seems logical that if HMRC is getting output tax on the income, then input tax should be claimable on the costs of the new facility.
Query 19,536 – Murray Man.
State pension plan
My client carried out consultancy work through his personal service company. We checked his relationship with the several firms that he was working for over the years and were satisfied that the IR35 legislation did not apply.
As well as this directorship, he has some income from various investments but his total income only occasionally exceeded his personal allowances. His wife has a more substantial income.
My client’s income was enough for his day-to-day requirements, so over the years he simply drew a salary from the company that was above the lower earnings limit but below the primary threshold. In that way he avoided an income tax liability and built up more qualifying years, thereby protecting his entitlement to a National Insurance retirement pension.
The consultancy work ceased during 2019-20 and the company has reserves of capital. The director has another ten years or so until he reaches the state pension retirement age. Rather than liquidate the company, the plan is to continue to draw a salary from the company which will, assuming things remain the same, not be liable to income tax but which will continue to add years to his state pension entitlement. The company will show losses.
I should be grateful if Taxation readers could let me know whether this is a sensible plan. I am worried that I am overlooking something important on the personal or corporate tax front.
Query 19,537 – Barney.
Tax construction
My client, Bloggs Ltd, is a successful scaffolding company with a turnover of more than £1m. The director has now been approached by a prospective customer to carry out a substantial roofing contract which by itself should be worth about £1m.
The director has asked me whether he should form a separate limited company (say, Bloggs Roofing Ltd) or should the income and expenses for this work simply be put through the scaffolding company? My immediate response would be to put the sales through Bloggs Ltd because this saves administration costs and the like. However, I am now wondering whether Mr Bloggs should form a holding company that owns 100% in Bloggs Ltd and 100% in Bloggs Roofing Ltd.
I should be grateful if Taxation readers could let me know what the potential advantages and disadvantages of such a plan would be from a tax and VAT point of view.
Query 19,538 – Blogger.
