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Liquidation proceeds
Tax treatment of proceeds of land to non-resident.
My new client has provided me with details of income received by his infant grandchildren, who are resident in Sweden, in the past tax year.
The UK income is insignificant and the overseas income in the investment portfolio is not subject to UK income tax, so I do not believe that there is a need for the children to submit a UK return.
However, among the receipts are distributions from the family company that had owned land which the company sold in June 2019. The distributions under liquidation were made in the summer of 2020.
The land was the only asset of the company so would have been affected by the change in April 2019 to indirect holdings of land by non-residents. The legislation talks about assets ‘derived from’ UK property, and goes on to say directly or indirectly so I am not certain whether the disposal proceeds of the land are still caught by the new rules, or the fact that the only asset in the company is cash as at the date of liquidation, whether any gain that arises on the shares would be exempt from UK tax.
Could readers provide some help on this matter?
Query 19,759 – Puzzled.
Trading losses
Treatment of trading losses on a company sale.
I understand from CTA 2010, s 673 that pre and post April 2017 trading losses are restricted if there is a major change in the nature and conduct of the trade (condition A) or the acquisition occurred when the trading activities become small or negligible and before a major revival (condition B).
Does condition B apply if there was no turnover in the year of acquisition but the company did not cease trading, eg it was a ring fence company that closed its plant and was later sold in that year with pre-April 2017 trading losses, and there is no major revival after the change of ownership until after three years of the change? Will the pre April 2017 losses be denied?
If we look at s 674A, the losses will still be available even if condition A is met but the major change did not occur after three years of the change of ownership.
Finally, on capital allowances, will the tax written down value of the vendor company be available irrespective of the restrictions of s 673?
I look forward to readers’ replies.
Query 19,760 – Confused.
Statutory residency test
Application of statutory residency test to sick client.
Our client has been non-resident in the UK since 2016-17. In the 2020-21 tax year, while visiting London, the client fell ill and has been undergoing hospital treatment so was unable to travel home to Cyprus.
Under the statutory residence test considering sufficient ties, he has one tie in the UK and would be considered non-resident in the UK if 60 exceptional days are taken into account.
His wife, who arrived here with him, cannot go home because she is his main carer. She has been non-resident in the UK since 2015-16.
HMRC’s Residence, Domicile and Remittance Basis Manual at RDRM13240 is not clear on her entitlement to exceptional days in 2020-21. She has one tie, being accessible accommodation but, if she is not eligible for exceptional days, she would be considered resident in the UK having been here more than 183 days.
In that case, our client would have a second tie because he would have a spouse resident in the UK, making him resident in the UK with its tax implications on funds remitted for medical and personal care.
We also considered whether the wife could benefit from exceptional days because of the coronavirus pandemic (RDRM11005) but flights have been available to her country of residence and borders have not been closed.
Readers’ views will be welcomed.
Query 19,761 – Flintstone.
VAT repayment
VAT repaid back to HMRC on property sale.
In November 2014, a client – a property developer company – bought a plot of land for £300,000 plus VAT, with the intention of building a warehouse to rent out to a storage company.
The company opted to tax the land and claimed input tax on the purchase price and legal fees on its December 2014 return.
However, the project never materialised and the company sold the land at a loss for £240,000 in January 2021 to a housing association. No VAT was charged because the association gave my client form VAT1614G before the sale.
My client repaid 20% of the input tax on his March 2021 VAT return on the basis that the land was sold at a 20% loss, ie the box 4 input tax figure was reduced by £12,000. He said the repayment is necessary because of the payback and clawback rules.
Can readers tell me if this is correct?
Query 19,762 – Juggler.
