.png)
.png)
Director’s loan
Dealing with outstanding director’s loan post-death.
A small trading company loaned one of its elderly director/shareholders £750,000 about five or six years ago and section 455 tax has been paid in full by the company. The other directors/shareholders are close family.
It has been suggested that if the loan remains outstanding and is then formally waived after his death, the estate will only suffer basic rate income tax on the distribution with no recourse to beneficiaries. The company’s reserves are sufficient to absorb the write off.
It is likely that the director will die with minimal assets and the only outstanding liability being this debt owed to the company. It is assumed that his shares will either pass to the children before he dies or would not be worth much in any case. It is more than likely that it will be a technically insolvent estate but the family will not chase the debt.
What do readers think about the taxation aspects of the proposal?
Query 19,891 – Beem.
Property charge
Property proceeds paid on divorce settlement.
A property is jointly owned by Mr A and Mrs A. When they divorced, the court awarded the house entirely to Mrs A but as part of the divorce settlement the court agreed that a property charge should be applied which entitled Mr A to 40% of the market value when the property is sold.
Mrs A has decided that she does not want to sell the property and would like to remove the property charge by settling the amount owed to Mr A based on the current market valuation. In these circumstances, is the payment to Mr A subject to capital gains tax because the property has not actually been sold? And if it is not subject to capital gains tax, how would this be declared in Mr A’s self-assessment, if at all?
I would be grateful for some assistance from readers.
Query 19,892 – Thorn.
Overseas expenses
Director’s overseas hotel and subsistence expenses.
I have a client who trades through a limited company and is a sole director. He has been working abroad through his UK registered company for the last 20 months although he was resident in the UK in 2019-2020. He was non-resident during 2020-2021 and has not made any visits to the UK in the current tax year.
He is acting for a few clients overseas in UAE and contract/project assignments are short term. I do not believe he is caught by the provisions of IR35 as he has been free to determine how he does the work and has been subcontracting aspects of work billed to the client.
My concern is his company has been paying for his hotel accommodation and subsistence and am wondering what the tax implications are for himself and his company.
I am assuming once he has stayed in the UAE for 24 months, the company would need to cease paying his expense of accommodation and subsistence. Otherwise, whilst the company could receive a tax deduction for the expense, it would be liable for employers’ NICs and he would be liable to tax and national insurance on these payments as remuneration. Although he may be able to recover tax deducted he will not be able to recover NI deducted.
I would be grateful for readers’ views on the application of HMRC’s 24 month/40% rule and the tax implications for the UK company and the client if they continued to reimburse the director beyond 24 months of his hotel and subsistence expenses.
I look forward to receiving readers’ replies.
Query 19,893 – Traveller.
Building work dilemma
VAT issues on conversion and subletting of barn.
I have recently taken on a new client, who will be entering into an agreement to rent a barn from a farmer for £50,000 a year plus VAT.
She will then sublet eight different treatment rooms to individual traders, such as therapists, masseurs, physiotherapists.
My plan is to register the client for VAT and opt to tax the building so that she will charge VAT on her rental income. But is this necessary because most of the renters will be small traders and not registered for VAT?
A further twist is that the farmer wants my client to finish off the barn conversion by engaging the builders herself. This will cost her £150,000 plus VAT – not a problem because she has the cash flow to pay the builders, unlike the farmer. In return, she will get three years free rent for the building.
Do readers see any problems with this approach? Presumably she will get the builders to invoice her business so that she can claim input tax.
Query 19,894 – Tina.
