Can FHL losses be offset against rental profits?
Our client has two holidays lets (FHL)and five rental properties.
They have built up substantial losses on the FHL properties due to Covid-19 and the FHL market on these properties not picking up post-Covid in the way some other FHLs did in other areas, eg coastal.
It is our understanding that under the change in the rules, from 6 April 2025 the FHL losses can be offset against the profits from the rental properties.
With the change in FHL rules it appears that our client has benefited from the change in tax terms and also in commercial terms as they plan to incorporate more long term lets into the previous FHL model without being bound by restrictive FHL tax regulations?
We welcome feedback on this question and wonder if HMRC will question previous FHL losses with regard to reasons for losses, etc?
Query 20,503 – Beach Lover.
How should client account for foreign tax?
My client runs a confectionary business. The company was set up in the UK but has been expanding into other countries in Europe, including Belgium and France where they have opened successful branches selling mainly sugar and chocolate-covered waffles.
The UK, Belgium and France branches will all have December year ends. The income and expenses for the European branches for 2024 will be included in the tax return for 2025.
When the UK company was set up, no election was made under CTA 2009, s 18A to exclude profits of overseas branch.
My question is: how should I account for my client’s foreign taxes in 2024, since they have not yet been suffered?
Tips from readers would be welcome.
Query 20,504 – Scales.
Effect of using proceeds of buyback as a loan.
We are about to request HMRC clearance for CTA 2010, s 1033 ‘capital’ treatment in respect of a proposed company purchase of own shares.
We are content that all the ‘capital’ treatment conditions are met, and on his retirement, the individual will dispose of all of his shares, and has no ‘associates’ who are still shareholders in the company.
Cashflow is a little tight for the company, and the proposal is that once the vendor has received his consideration, he will immediately lend some of it back to the company, and it is expected that the loan-back will be for somewhere between two and three years.
Considering the amount of the loan-back compared to the company’s remaining share capital and other loans, it represents about 25%; although the vendor will not hold any share capital after the buyback has taken place.
The 25% is, of course, less than the 30% ‘ongoing connection’ test, but our concern is if any of the other loans are repaid during that two to three year period before our client is repaid, such that the loan-back as a percentage of the combined share capital and other loans, increases to over 30%.
We are not sure whether s 1042 is in point, here, because the vendor will not own any share capital – he will simply have the debt owed to him by the company. But on the other hand, s 1042 does provide the comfort of a ‘one year’ window for the ‘ongoing connection’ test, from the date of the buy-back.
We will indicate, in our clearance application, that some of the proceeds of the buyback will be lent back to the company, but are we correct to be worried if any subsequent repayment of the other loans pushes the vendor’s loan-back proportion to over 30% of the remaining share capital and other loans?
Query 20,505 – Puzzled.
Is VAT payable on art commission?
One of my clients is an expert in art and has earned a large commission for playing his part in a recent deal. However, he is in unsure whether he should charge VAT on the commission:
- The painting is currently located in France.
- The owner of the painting lives in Norway and the buyer is an art gallery in New Zealand.
- My client is actually working for a UK agent, registered for UK VAT; the latter is being paid a commission from the art gallery to procure the deal.
My understanding is that, because the goods are never in the UK, my client’s fee will be outside the scope of VAT but a colleague says this is incorrect.
Presumably it is not that important because the agent will claim any VAT charged by my clients as input tax?
Query 20,506 – Picallo.
