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Charitable transfer
Transfers to a charitable incorporated organisation.
I act for an unincorporated charity that wishes to change its status to that of a charitable incorporated organisation (CIO). I would be grateful for advice from Taxation readers on the tax consequences. In particular, I am interested in the capital gains tax and stamp duty implications of transferring property held in trust in the names of the charities’ trustees to the new CIO.
The properties are recorded in the accounts at their historical cost value of £1.6m. The charity has been long established as a religious community centre and, in terms of its size, has an annual income of about £150,000. This comprises donations and rental income.
I look forward to replies.
Query 19,567 – Canterbury.
Main residence election
Capital gains tax rule changes on private residences.
I now act on behalf of an elderly widow who, with her husband, owned two properties jointly for many years: their main residence and a weekend and holiday flat on the coast. They looked after their own taxes and I am not aware of any main residence elections having been made. On her husband’s death in June 2018, my client inherited the other half share of each property.
The widow has recently sold the holiday flat. She had used it from time to time following her husband’s death, but had found it had lost its appeal. There is a large capital gain, but in part this is alleviated by the uplifted probate value on the half share acquired on her husband’s death.
I was interested in ‘A merry dance’ (see Taxation,12 March 2020, page 16) concerning the changes to the capital gains tax rules on only or main residences, which refers to transfers between spouses. My question is whether the third ‘other change’ discussed in the article would allow my widowed client to make an only or main residence election for the flat? If this is possible, could she elect that from June 2018 the whole property should be treated as her main residence or would her own half share not be eligible?
Both properties were acquired more than 20 years ago and both have had a substantial increase in their value.
Thoughts from Taxation readers on the possible options to mitigate the potential capital gains tax here or on her other home would be appreciated.
Query 19,568 – Roxana.
Musical disposal
Would the sale of a musical instrument be taxable?
I have just seen a report in a newspaper that the guitar used by Kurt Cobain in an MTV ‘Unplugged’ performance is to be sold at auction, with bids expected to start at £800,000.
This started me thinking about my more ‘artistic’ clients who, from visits to their homes, I know own some valuable musical instruments – although perhaps not on a par with the Martin D-18E guitar owned by Cobain. Would there be a capital gains tax liability if these were to be sold or would they be exempt under the rules that I believe apply to chattels or machinery?
One client, who used to be a professional musician, has mentioned in passing that her piano is quite rare and valuable, but we have not discussed the possible tax issues in any depth. Would there be a similar potential tax liability if this was sold or given to a relative? She has not used the piano professionally for some years having, in effect, retired. That said, she did mention that she had received some offers to appear on a tour with some of her contemporaries. Obviously this is on hold at present, but I think she found the offer tempting. Presumably capital allowances could be claimed and I suppose that the annual investment allowance (AIA) could apply here?
I should be grateful for some general advice on this subject. If the subject comes up in future client visits I would like to feel more confident in advising.
Query 19,569 – Nazareth.
Option to tax
Issues with opting to tax property owned for eight years.
My client has owned a commercial property for eight years, and has rented it out to a company that makes only exempt supplies; in other words, it cannot claim input tax.
The tenant has now vacated the building due to the coronavirus crisis, and my client was concerned about the loss of rent. However, fortuitously, the client has already found a replacement tenant and this is a business that can fully claim input tax.
My client intends to spend £60,000 plus VAT on some improvements before the new tenant moves in. This work relates mainly to a new central heating system and window replacements.
It would seem sensible for my client to opt to tax the property to claim the input tax on the planned work because the VAT charge on the rental income will not be a problem for the new tenant. However, I have three questions:
- Will my client need HMRC’s permission to opt to tax because she has rented out the building in the past and not charged VAT? She has been VAT registered for ten years.
- Can my client claim input tax on any past expenses linked to the building – for example, the services received in the past six months – in the same way as can be done with pre-registration input tax or prepaid expenses that partly relate to a date after the option takes effect? There is no capital goods scheme issue that I am aware of.
Are there any disadvantages in opting to tax the property?
I should be grateful for information and advice from Taxation readers.
Query 19,570 – Confused.
