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Property disposal
Claim for expenditure on future sale of building.
My client is a trading company which occupies premises on which it has spent extensive amounts.
Originally, the building was bought by the holding company of the trading company but shortly afterwards was sold by the holding company to a self-invested personal pension (SIPP) fund for the benefit of the directors of the trading company. Since the disposal of the property to the pension fund, about £100,000 has been spent by the tenant on integral features.
In the case of a future sale of the building by, say, the pension fund to a property investor, is it necessary for a fixed value claim under CAA 2001, s 198 to be made at that point? I am bearing in mind that the existing tenant which incurred the expenditure will continue to occupy the building?
Taxation readers’ thoughts would be much appreciated.
Query 19,671 – Shaker.
Employee ownership trusts
Purpose and use of employee ownership trusts.
I see that many advisers are pushing businesses towards implementing employee ownership trusts (EOTs). I have no problem with their use for their intended purpose of spreading ownership among a large group of employees, but I am seeing EOTs being promoted as a profit extraction scheme for business owners.
For example, I heard from a client today that he had been told by an adviser that they would agree a valuation with HMRC for the shares of a tech business in the order of £5m. This would enable them to extract cash tax free over a number of years and obviate the need to pay dividends.
The advisers were certainly not emphasising the fact that the whole point of the scheme was to spread equity and I do not think that the client understood that he was being advised to relinquish control and give up a stake in future profits. I have not yet seen the detailed proposal, but my suspicion is that, in reality, nothing much had changed for the owners, other than that they would have extracted a substantial amount of tax-free cash.
Are EOTs in danger of becoming the next employee benefit trusts, with all of the problems which those caused? Can readers offer me any assurances that things are fine? Alternatively, can they let me have their experience of any problems they have had in this area?
Specifically, I would like to know whether it is possible to agree a valuation with HMRC in advance and whether it would be necessary to apply for a transactions in securities clearance in advance. It feels to me as if the owners are accessing tax-free cash here which, in their minds at least, is an extraction of profits they would otherwise have taken in income form.
Any advice would be gratefully received. If there are advantages here for my clients I want them to be able to access these, but I suspect that I, and they, are not seeing the whole picture.
Query 19,672 – Cautious.
Furnished property letting
Property allowance claim on furnished holiday lettings.
My question relates to the £1,000 property allowance where, if the rental income exceeds £1,000, the taxpayer can be taxed on the income less £1,000 and the actual expenses are ignored. This is clearly advantageous if the actual expenses were only, say, £500.
I understand that furnished holiday lettings have special tax treatment, but is this income combined with other rental income when considering the £1,000 property allowance?
I have a client where, on page 2 of the property pages of the tax return, I have rental income of £4,675, expenses £187 and net profit £4,488. Clearly it would be better here to claim the £1,000 allowance. However, on page 1 of the property pages I have furnished holiday lettings income of £2,321, expenses of £2,445 and a net loss of £124.
If I claim the £1,000 property allowance on page 2 does this prevent the client claiming the £2,445 expenses on page 1? Alternatively, can they be treated separately and still claim the £2,445 expenses on page 1 and the £1,000 property allowance on page 2?
I would be grateful for any assistance from Taxation readers.
Query 19,673 – Stanley.
Flat rate scheme
Flat rate scheme dilemma with HMRC VAT assessment.
One of my clients has an unusual VAT predicament. He is in business as a professional singer and registered for UK VAT, but recently had a telephone compliance visit from HMRC.
It seems that the officer has assessed the client for flat rate scheme tax underpaid on income he received from a series of private concerts he gave last year in three different EU countries and another in Norway.
My client did not charge VAT on any of the above fees because they took place outside the UK so he excluded them from his scheme calculations. The officer does not know they took place abroad because my client’s takings records only say ‘concert fees’ – hence his assessment based on my client’s 12.5% rate for the scheme.
I have told my client that the officer is wrong to assess this VAT because the place of supply for these concerts is outside the UK. But my client is happy to pay the VAT because he said that the officer might report him to the tax authorities in the other countries and they might ask for local VAT on these fees, at a higher rate than 12.5% – for example, the Danish rate of VAT is 25% where one of the concerts took place.
What do Taxation readers think?
Query 19,674 – Pav.
