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Leaving the partnership
CGT due on goodwill payment.
Cecelia is 30 years old. She has lived with her parents all her life and seven years ago was made a partner in a small family business which has traded very successfully. Then Albert appeared. To cut a long story short Albert and Cecelia were married in the UK on 28 February 2023. On 3 March the couple left the UK for Barbados, Albert’s home, where he had a house waiting for his bride.
Meanwhile the partners decided to remove Cecelia from the partnership because they wanted to facilitate an incorporation. They instructed their solicitor to prepare a deed of retirement with an effective date of 15 March 2023 and a goodwill payment of £81,000 to Cecilia was agreed. There was no acquisition value so the whole of this payment represents a gain.
From my reading of the legislation Cecelia will become non-UK resident with effect from 3 March 2023 because she will have satisfied the relevant criteria and, in particular, will have met at least two of the conditions of the ‘sufficient link’ test as far as her new country of residence is concerned.
My question is: where does Cecelia stand in relation to CGT bearing in mind that she was non-UK resident when the chargeable occasion arose and there are no plans to return to the UK apart from an occasional holiday?
Also, what CGT entries will need to be made on Cecelia’s 2022-23 UK self-assessment tax return in due course?
Query 20,115 – Noble.
Charitable giving
Tax treatment of gift of German shares.
My client is a German national who is both UK resident and domiciled. She was about to make a substantial donation of quoted German stocks to a German registered charity. Until the recent Budget I was happy that she would be entitled to UK tax relief on the donation. Additionally, the gift would not be subject to UK CGT as the no gain-no loss rules would apply.
Following the chancellor’s announcement of the restriction of charitable reliefs to UK charities, would readers confirm my understanding that such a gift by my client will no longer attract income tax relief and any capital gain on the gift would now be subject to UK CGT. I also assume that the gift will be a potentially exempt transfer for IHT purposes whereas before it would have been exempt.
Am I correct or have I misunderstood the Budget announcement?
Query 20,116 – Herr Gift.
Land development options
Tax implications of timing of payment of profit share.
My client owns land in the UK and he has been approached by a developer who believes that planning can be obtained.
A number of options have been proposed. One is for my client to receive no up-front payment but instead share in any development profit. The tax base cost of the land is £1m. The ‘first initial date’ value (BIM60650) is believed to be £4m and the ultimate total receipt could be £21m. I appreciate that the proceeds will be split between capital gain (£4m less £1m) and the balance of £17m will be subject to income tax under the transactions in land provisions of ITA 2007, s 517A-U. Any contract will be subject to planning and payments to the trust will be phased over four to five years as the development progresses. At what stage will the payment be disclosable and taxable?
A second option would involve an up-front payment of £10m (conditional on planning) but a reduced final total profit share of £19m. BIM60365 would indicate that where the initial payment is in excess of the first initial date value then only the excess over the initial payment is subject to income tax. This would appear to be too easy a way to convert what would be an income profit under s 517A into a capital gain simply by altering the timing of receipt.
What do readers think?
Query 20,117 – Trustee.
Working arrangements
VAT challenge caused by home-working.
One of my clients has encountered an unusual VAT situation following a change in the company’s working arrangements.
The company (incorporated in the UK and registered for VAT) provides IT consultancy services to UK businesses and used to have an office in London which was the seat of the decision-making process (the principal place of business and where all the employees worked). After the pandemic, the company ended the lease on its UK premises and all employees now work remotely. I asked HMRC’s helpline service what address we should now use for VAT registration purposes and was told that in the absence of an office, the address would default to the residential address of one of the directors who control the company. The two directors live in the Netherlands.
Does this mean we need to deregister from UK VAT and register for Dutch VAT instead? The sales to UK customers will then be dealt with by the reverse charge on the customer’s VAT return and my client will recover input tax by making a non-EU refund claim to HMRC.
This seems a very complicated outcome – what are readers’ thoughts? The registered address of the company with Companies House is the address of our external accountants and we are currently showing this address on our sales invoices.
Query 20,118 – The Traveller.
Queries and replies
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