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Charge to SDLT on life and reversionary interests.
We have a number of UK resident clients of Italian origin who have various property interests in Italy. It is not uncommon for Italian parents, living in Italy, to make an inter-vivos gift of their real property to their children while retaining the use and enjoyment of the property, normally for life. Hence, we have the creation of both an usufruct (similar to a life interest) which confers the use and enjoyment of the property to the parents, and bare ownership which confers legal title to the property to the children, but no right to its use or enjoyment until the death of the parents, or expiry of the usufruct if earlier (legal ownership – reversionary interest). The children may be likened to the remainderman in these arrangements. I believe that these types of arrangement do not create any form of lease. On the expiry of the usufruct, the children’s legal ownership of the property becomes unfettered.
The question arises as to whether the remainderman, and indeed the life tenant, have a ‘major interest’ in the underlying property for the purposes of the additional charge to SDLT. In particular, in the case of the bare ownership by the remainderman, can a heavily encumbered legal right of indeterminate duration be considered as a ‘major interest in a dwelling’ where:
- A remainderman has a reversionary interest in a property which does not arise from a lease, and which has a value in excess of £40,000, does he meet condition C of FA 2003, Sch 4ZA para 3(1A)(4) ?
- A life tenant has a life interest in a property in similar circumstances, does he meet condition C of FA 2003, Sch 4ZA para 3(1A)(4) ?
I look forward to readers’ replies.
Query 20,127 – 3 percenter.
Mitigating factors to avoid bankruptcy.
Our 48-year-old company director client died suddenly last year leaving only a 25% share in what could become quite a valuable company.
His widow now faces three years’ self-assessment liabilities totalling nearly £10,000, derived from a salary and dividends from the family company. She cannot meet these and has no knowledge of the situation as her husband filed the annual returns and was somewhat secretive.
Would there be any point in letting HMRC know this, or are readers aware of what other mitigating factors can be used to avoid bankruptcy? Phased payments supported perhaps by a solicitor’s undertaking comes to mind, however I suspect not only are there no assets, but no equity in the family residence.
Any advice would be appreciated.
Query 20,128 – DW.
Do supplies by brokers qualify for VAT exemption?
My two clients, A and B, are regulated mortgage brokers who arrange buy-to-let loans to landlords via a limited company, AB Ltd, of which A is the sole director and shareholder. A and B are both personally involved in the business and are not otherwise connected.
Upon completion of a loan, AB Ltd charges the borrower a fee and receives a ‘procurement fee’ from the lender.
In a typical year, AB Ltd generates £300,000 in income from commissions, which after admin expenses of £30,000, leaves about £135,000 to each broker.
A and B have their own companies (A Ltd and B Ltd) which charge AB Ltd for the profit share, allocated normally on a 1:1 basis. The charges of, say £135,000 by each of A Ltd and B Ltd, leave AB Ltd with no taxable profits, and the two companies account for corporation tax on their profits, described in the accounts as ‘commission income’.
It seems clear that income by AB Ltd, from borrowers and lenders alike, falls within VATA 1994, Sch 9 gp 5 para 5 and is VAT exempt. Uncertainty arises on whether the same treatment applies to charges by A Ltd and B Ltd to AB Ltd.
The reality is that when a borrower approaches A, it is A who acts as an intermediary between the borrower and the lender and ends up with income related to that deal. However, the ‘front window’ which clients face is AB Ltd.
Do readers agree that, despite the two-layer charging mechanism, the supplies by the two companies to AB Ltd also qualify for the VAT exemption?
Query 20,129 – Salmanzar.
Continuing VAT returns or can company deregister?
Our client is a UK company specialising in procuring and selling materials for the printing industry. The materials have to date been sourced in the UK and Korea. They are shipped direct to customers in Malaysia and Taiwan.
While the purchase and sale is reflected in the company, all goods are sent direct from the supplier to the customer. The company is registered for VAT and has input VAT on the UK supplier’s goods. That supplier is stopping business and therefore no purchases will incur VAT.
At present, the company has repayment VAT returns each month. Once the UK supplier ceases to trade, do VAT returns still need to be made or can the company deregister?
Readers’ comments are welcomed.
Query 20,130 – J Verne.
Queries and replies
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