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What are the tax implications of gifts to politicians?
My client is a wealthy local businessman. He is a friend to a newly-elected member of parliament and the news about gifts of clothes and suchlike to ministers has prompted him to ask me about the potential tax implications.
I am not sure whether the major parties will issue some kind of blanket ban on such gifts, but let’s assume not. If my client were to help his local MP with a gift of clothes, holiday accommodation or perhaps transport – such as flights or even the use of a car – would he be able to claim any tax relief on these costs if they were provided through one of his companies?
On the other side of the coin, and to pre-empt any issues, would the MP be liable to a tax charge on the value of these gifts? Alternatively, would the business itself have any obligation to pay tax and/or NICs in this regard? Other than their personal friendship, the MP has no connection with any of the companies.
My client would not want to be doing anything improper and I know that further research is needed to ensure that everything was declared and above board, but I would like to at least be clear as to the possible tax aspects.
Query 20,407 – Steer Clear.
Exception for family or personal relationships.
Our client (A) is 66 and owns 80% of an engineering company which he set-up 30 years ago. The other 20% is owned by a long-term employee (B) in his 40s who joined 15 years ago. After working his way up, he is now the managing director responsible for running the company.
A’s involvement in the business has progressively reduced. He wants to retire and pass his 80% shareholding to B.
A is comfortably wealthy and has no children to leave his estate to. He wants to gift his 80% shareholding to B, so that the company can continue in its existing form – there is no desire to sell the company, and transferring to general employee ownership would not be appropriate.
The income tax on the receipt of these shares (valued at £1.5m) would be unacceptable, however it seems to us the gift would not be being made by virtue of the employment relationship – one would not reasonably expect a majority shareholder simply to give their shareholding away for no payment. ERSM20220 refers to a proprietor passing his business to a ‘long term employee with whom he has developed close personal ties’, but how does one define this? A clearly sees B as a ‘good guy’, but they don’t socialise.
Would it be enough for our client to make a formal statement (eg affidavit), to say that the gift is being made as a consequence of their personal relationship and not by virtue of the 20% shareholder’s directorship? Or does some measure have to be applied to their personal relationship and, if so, how might that be evidenced? If the transfer is made as a result of a personal relationship, the ‘quality’ of the personal relationship should not be relevant?
Query 20,408 – Puzzled.
Can interest from joint account be divided other than equally?
My client has received a substantial inheritance from her parents. She intends to place the money on deposit and will receive interest. She is liable to income tax at the basic rate and her husband is liable at the higher rate. The husband is happy for the inheritance to be placed in a bank account in the sole name of his wife on the grounds that it was bequeathed to her, and that a lower rate of income tax will apply to the interest.
However, they are getting on in years and she believes that if the account was in joint names, it might make things easier if one of them were to die as the other would have immediate access to the funds (which wouldn’t be subject to probate).
If the statement about probate not being required for the survivor to access the funds is correct, is there any way that the interest accruing to this account could be declared on their tax returns in a proportion other than a half share each? Ideally, could they sign something to acknowledge the source of the money and that the interest accrues totally to the wife? Would the position be different if they were not married or civil partners?
Query 20,409 – Legacy.
Is option to tax possible for rooftop land sale to build flats?
One of my clients is the freeholder of a site that includes a block of 28 flats on seven floors ie, four flats on each floor. They have been approached by a land consultancy firm which has suggested getting planning permission to build another four flats on the top of the building. The proposal is that the consultants will get planning permission from the local authority for the four new flats and also design their layout and design. They would charge my client a success fee of 20% plus VAT ie, based on the proceeds my client gets from granting a 999-year lease to a developer for the right to build the four flats on the top floor. The developer will claim input tax because they will make zero-rated sales of four new dwellings.
I have two VAT questions:
- Presumably the land consultant will charge my client 20% VAT, even though they are getting a profit share from the deal rather than providing services for a fixed fee?
- Will my client be able to opt to tax the top floor with HMRC and charge 20% VAT on the proceeds from the grant of the 999-year lease to the developer, ie so that input tax can be claimed on the consultancy fee and other costs?
Query 20,410 – Speculator.
Queries and replies
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