Tax effect of leaving the UK on life assurance policy.
A UK client worked in the US for quite a few years from 1998 onwards and, while he was there, he took out a life assurance policy with a US life company.
He assigned the policy which pays out on his death to a discretionary trust for his children and grandchildren who live in the UK. The trustees are UK residents. He continues to pay the annual premiums on the policy.
We are wondering what the tax position will be in the trust when the death benefit is paid out. The client is now thinking of leaving the UK permanently due to the current high tax regime.
Could this have any impact on the tax position in relation to the life policy?
Query 20,499 – Uncle Sam.
Will executors be able to claim RNRB on death?
Our clients are both non-UK domiciled and will remain non-UK domiciled under the new rules effective from April 2025.
Currently, they own their main residence, valued at £1,200,000, with no outstanding mortgage. They intend to sell this property and relocate to South Africa permanently.
Furthermore, they plan to allocate £650,000 into a UK discretionary trust for the benefit of their children and grandchildren. The remaining £550,000 will be invested in shares within the UK.
In addition, they own a property in South Africa valued at £400,000, which will serve as their main residence upon their return to South Africa.
They intend to gift this property to their children upon the second death. On the first death, they will leave their respective shares of the estate to one another.
My question is as follows: will the executors in the UK be able to claim the residence nil-rate band (RNRB), given that they own a main residence in South Africa?
Taxation readers’ views would be much appreciated.
Query 20,500 – Peripathetic.
What is the tax position if company is liquidated?
A client owns 100% of the shares of a non-UK company which, in turn, owns a UK residential property.
There is a loan from a third party (in this case a non-UK trust) to the company which has been used to pay for expenses. The loan is not secured on the property.
Ignoring all the other issues, what is the stamp duty land tax position if the company is liquidated and the property and the debt are transferred out to the shareholder?
Would the assumption of the debt be treated as consideration for the transfer even though it is not secured on the property? If the loan was effectively replaced by a shareholder loan, would this improve the position or would it be caught by FA 2003, s 75A?
Query 20,501 – Insecure.
Should charity repay VAT to HMRC?
I act for a charity – with charitable objectives of religious worship – and four years ago, it was left some land and money by one of the worshippers in his will.
The charity constructed a new building on the land and benefited from zero-rated building services; the builders also provided materials as part of their work, which were also zero rated.
We issued a zero-rating certificate to all of the builders because the building was wholly used for charitable purposes. The charity has never registered for VAT because it has no taxable sales.
However, due to declining numbers of worshippers, the trustees have decided to rent smaller premises in the local town centre for the charitable activities and this rent will be funded by renting out the current building to a firm of solicitors that will trade from the premises. It is my understanding that the rental income will be exempt from VAT.
My concern relates to VAT: as the initial building work and materials exceeded £250,000, do we need to register for VAT when we vacate the building and treat some of the zero-rating benefit we received as standard rated, making adjustments on returns over the next six years, ie to complete the ten year period of the capital goods scheme? So, for example, if the total value of the work carried out was £400,000, the VAT we saved of £80,000 on builder services and materials is divided by ten years, so we must declared £8,000 x six years and then deregister in 2031.
I am very interested to read if Taxation readers come to the same conclusion as I have, or whether I have got the numbers wrong – which is admittedly entirely possible!
Query 20,502 – Benedict.
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