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Onshoring property company.
A UK resident client owns a company resident in the Channel Islands. The company owns rental properties in the UK which are outside ATED. The client would like to simplify the structure by bringing it onshore. The properties are mortgaged and owned since pre-2015.
It seems that the simplest way to achieve the desired objective is to put a UK holding company in place following a share for share exchange and for the offshore companies then to distribute the properties as dividends in specie.
I have a number of concerns. Will TCGA 1992, s 171(1A) preclude relief on the transfer? If there is a liability would the appointment of UK resident directors prior to the transfer remove the s 171(1A) risk? The offshore companies are in the charge to tax as a result of holding UK land. Is this sufficient to qualify for relief under s 171? Does the market value of the properties at the date of distribution have any UK tax or accounting implications?
If the UK company sells a property, what is its base cost for calculating any gain or loss. Is it the 2015 market value, cost price or market value at the date of transfer? Is there any liability to SDLT on the value of the mortgages transferred or does SP3/98 provide full protection?
Are there any risks associated?
Query 20,039 – Jezzer.
HMRC windows to enquire into cryptoasset loss overstatement.
Our client’s 2020-21 tax return was filed on 19 January 2022. An amendment is required to the 2020-21 tax return for a material overstatement of a capital loss on disposal of a cryptoasset which arose because of a section 104 pool calculation error in 2017-18 (by our predecessor) recently identified, that flowed into 2020-21.
Cryptoasset disposals in 2020-21 were included in the ‘Listed shares and securities’ section on page CG2. When amending the cryptoasset disposal computation error, we propose to move all cryptoasset disposals to the ‘Other property’ section on page CG1, rather than retaining the amendments within the wrong boxes on page CG2. After 12 months of filing the original 2020-21 return, HMRC’s enquiry or compliance check window extends in respect of the amendments and matters affected by the amendments and not for the whole tax return (EM1506, EM1507 and EM1520).
However, the original entries of non-crypto disposals in both sections on pages CG1 and CG2 do not require amendment and are unrelated to the cryptoasset disposal calculation amendment required and the relocation of the crypto disposals to the correct boxes. That said, by reducing the capital loss in 2020-21, additional CGT is due on gains in that year, which will be paid.
If HMRC does not issue an enquiry notice by 19 January 2023, is HMRC out of time to enquire into the original non-crypto disposals on both pages CG1 and CG2? Or will HMRC be in time within the extended window to enquire into all entries within all amended boxes on both CG pages? Full disclosure was made of all disposals in the 2020-21 tax return and will also be made in respect of the amendments.
Query 20,040 – Boxed In.
Overstated car benefit.
A couple of my individual clients have received ‘nudge’ letters from HMRC saying that there is a discrepancy between the benefits information on their tax returns and the benefits information provided by their employer.
I reviewed the PIIDs provided by the employer when preparing their returns and concluded that they were incorrect as the car benefit had been overstated (the wrong CO2 emissions figure had been used – I don’t act for the company). The clients made a white space disclosure on their returns explaining this. I advised them to tell their employer about the mistake, but do not know if they did.
Although I am sure that the car benefit figures on the self-assessment returns are correct, I am worried that my clients will blame me for creating a problem with HMRC and with their employer. Can I advise them to ignore the letter? If they do, I fear that this might lead to an HMRC investigation.
How would readers handle this?
Query 20,041 – Worrier.
Is there VAT to pay on charges for networking events?
One of my clients organises networking events. He makes a loss on every event because of the hotel charge for food, drink and a room but he is happy to cover this loss because of the potential business leads he gets.
My question concerns VAT: although he is VAT registered, my client has not charged VAT on the £25 charge made to each delegate, on the basis that he is making a loss and not providing any VATable service to the delegates. The aim of the charge is to encourage attendance and minimise cancellations.
As the events are popular, the amount of potential VAT not charged is considerable and, as a separate issue, my client has claimed input tax on the hotel costs. What do readers think is the correcting VAT treatment here for input and output tax purposes?
Query 20,042 – Networker.
Queries and replies
