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Issues replacing trustees.
A, who was domiciled and resident in South America, settled funds in 1990 on discretionary trusts appointing Guernsey resident trustees. There is also a UK professional protector. A has since died. The primary beneficiary is A’s daughter, B, who has been settled in the UK for the last 40 years or so and is now deemed UK domiciled.
The trust’s assets now comprise cash of £200,000 in an overseas bank account and shares in a Moroccan company whose sole asset is a residential property in that country. The property is not let, but under a licence, B and her family or friends occupy it occasionally. Any deficiency of licence fee income over running expenses is made good by B. The property is now probably worth more than its book cost. The aim is to sell the property and wind up the trust. This is likely to be achieved by a sale by the company rather than a sale of the company shares.
Due to spiralling costs, consideration is being given to appointing B and her son C (also UK resident) as trustees instead of the Guernsey trustees. B and C would also become shareholders in the Moroccan company.
Do readers: (a) agree that the situs of the shares and therefore the excluded property status would be preserved; and (b) foresee any possible disadvantages in the proposal?
Query 20,227 – Seeker.
Costs of running hybrid car.
A client has recently acquired a hybrid vehicle via their owner managed limited company (sole director, sole shareholder). The company is the legal owner of the vehicle and the client would like to claim for both fuel and electric costs. The car will be used for personal and business journeys. The director/shareholder proposes to pay for the fuel via the company debit card and I have advised them that they will suffer both a personal fuel and car benefit in kind (BIK) in this regard. However they would also like to claim electric costs for charging the vehicle at their home.
I was recently reading that HMRC has updated its guidance: under ITEPA 2003, s 239 the costs of charging electric vehicles at home are now treated as a tax-free benefit. ITEPA 2003, s 239(6) mentions that the exemption applies to a ‘taxable car’. Looking at the definition I can’t see that this explicitly excludes hybrids, so I assume that the exemption would apply, but could readers clarify?
Separately, EIM23900 states (stage 2) in ‘employee charges car at home: their employer reimburses the electricity costs’ that employers will need to ensure that the reimbursement made towards the electricity is solely for the company car. Could the reimbursement be based on the Kw/h each charge uses multiplied by the unit rate, etc? I hoped to use the fuel advisory rate to claim for the electric costs based on business mileage but the guidance mentions that hybrid cars are treated as either petrol or diesel cars for fuel rates so assume this is not possible.
I would welcome readers’ thoughts.
Query 20,228 – An Adviser.
Averaging election under s 326.
My client Louis (L) and his brother Andrew (A) inherited a cottage from their parents years ago. The property is used as a holiday let and had, for many years, met the FHL conditions – being available for some 300 days/year and let for some 180 days on short lets. Profits are shared jointly between the siblings.
Last year, Louis’s wife Lizzie (LZ) inherited a bungalow from her parents, and the couple decided to register ownership jointly. The bungalow is also let on an FHL basis but was only let for 40 days in the first 12 months since it was first let on 6 April 2022 (‘qualifying period’ set out in ITTOIA 2005, s 324(2)).
L therefore has a 50% interest in the cottage – which qualifies as an FHL in 2022-23 – and a 50% interest in the bungalow – which, on initial analysis, does not qualify as an FHL 2022-23.
Thought was given to the averaging election available under s 326 – however its operation in this case is not clear:
a) Can L elect average the aggregate actual let of 180+40 days, so that his share in both properties qualifies as an FHL?
b) If an election can be made on this basis, what is the impact on the share of the bungalow’s profits allocated to LZ – to whom the election is not available? Will they be taxed differently on income from the same source?
The couple are higher rate taxpayers and FHL treatment is crucial to secure full relief on mortgage interest. What do readers think?
Query 20,229 – Aberforth.
Pay VAT on charity’s work?
I have taken on a new charity client which provides day care support by way of therapy; the clients of the charity carry out garden-related activities for therapeutic purposes and the charity receives funding from the council to help pay the carers on the payroll and other costs. The work is carried out at a site for which they pay a nominal rent. Presumably, the grant income is outside the scope of VAT and can be ignored as far as the £85,000 registration test is concerned?
However, the charity has recently taken on some additional gardening work at other sites and the landlords/owners of these sites will pay the charity for the work done.
My thinking is that this income is taxable for VAT purposes and if the total annual fees exceed £85,000 (which is likely) they will need to register for VAT? Am I correct?
Query 20,230 – Titchmarsh.
Queries and replies
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