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Does BADR apply on liquidated company?
We represented a husband and wife partnership which started trading in 1988. In March 1991 the property from which the partnership traded and had previously rented was purchased from the landlord solely in the husband’s name. In September 2000 when the partnership needed additional finance, the ownership of the property was changed so it became owned 50/50 between the husband and wife. The loan and new loan were in joint names from this date.
On 1 April 2009 the partnership’s trade was transferred to a limited company excluding the property but from this date rent was paid by the company to the old partners but not a market rent. The husband and wife were also the beneficial owners of the shares in the new company 50/50.
In April 2012, the husband and wife transferred a third of each of their 50% interests in the property to the husband’s pension fund. Subsequently, the husband and wife continued to receive a smaller rental on the property and again at less than a market rent, but the company also paid a market rent for the third of the property now owned by the pension fund.
In January 2023, the company went into an insolvent liquidation and the husband and wife shareholders have not received any money for their shares in the company. From January 2023 to March 2024 the property remained empty and was sold in March 2024 to an unrelated third party with the disposal proceeds split one third each to husband, wife, and the pension fund.
Our question surrounds BADR for the property as regards the husband and wife and whether this is complicated by the fact that the company was liquidated and as it was insolvent no money has been received for the shares, so there has been no an actual withdrawal from the business. We think the answer must be yes, but do readers agree? If this is correct, then BADR should be claimable on the full gain subject to a restriction for the rents received by the husband and wife from the company from April 2009 to January 2023 in relation to the actual market value for the rentals at the relevant times. I also think that as part of this a negligible value claim should be made on the shares in the company on which no incorporation relief was claimed when the partnership business was incorporated.
Query 20,355 – Busted.
Disclosing gains if taxpayer is not within self assessment.
My question concerns disclosure of capital gains (and I am not concerned here with residential property gains). I know that if a client is already within self assessment (SA) there is no requirement to include any information on the return if the gain is covered by the annual exempt amount unless the proceeds are over £50,000. But what is the position of somebody who is not within SA and who has not been issued with a return?
TMA 1970, s 7 says that there is a requirement to notify gains unless a person has no ‘chargeable gains’. But I read TGCA 1992, s 1K as saying that the annual exempt amount is deducted from chargeable gains – which implies that any disposal at a profit of a chargeable asset gives rise to a chargeable gain and therefore there is a disclosure obligation even if no CGT is payable. That is a more onerous position than if somebody is within SA.
I can’t believe that this is right so I am sure I must be missing something. Can Taxation readers help put me out of my misery, please? Query 20,356 – Worrier.
Capital goods scheme and pre-registration property asset.
I am confused by the mechanics of the capital goods scheme for one of my clients who purchased a property for £500,000 plus VAT in March 2020 but did not register for VAT until 1 March 2024. She trades as a medical practitioner and her standard-rated sales of cosmetic treatments only exceeded the registration threshold on 31 January 2024 – all other sales she makes are exempt from VAT.
How much input tax can my client claim in the next ten years with the scheme calculations? She uses the partial exemption standard method and her standard-rated sales are 25% of her total income. She completes returns on calendar quarters.
I’d appreciate help on the numbers.
Query 20,357 – Harley Hazel.
Is VAT payable on new emergency alarm system?
One of my audit clients collects service charge at a retirement village and is not registered for VAT because the service charges are exempt. The service charges are specified in the lease as each resident effectively owns their apartment on a 99-year lease.
The client trades as a limited company and is non-profit making; any surplus on the accounts is transferred to a contingent repair account, ie to cover future redecoration, etc.
The company is paying £30,000 plus VAT on upgrading the emergency call systems throughout the block ie, the system whereby residents can pull a chord in their apartment if they need assistance or support from the duty manager, eg if they fall over. It seems unfair that the supplier wants to add £6,000 VAT to their invoice as many of the residents are disabled and some are house bound. Do readers see scope for zero rating here, or any reclaim system that can avert a VAT charge for my client?
Query 20,358 – Alarmed.
Queries and replies
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