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Implications of selling personal collection.
My client sells books and other collectables on eBay. He buys his stock from other online sources and in-person dealers. This is a taxable trading activity and is treated as such in his SA returns.
The client has recently started selling some items from his personal collection. These items are listed on his eBay site in the same way as his trading stock and the purchaser has no means of knowing if what they are buying comes from the trader’s own collection. He has asked me whether he has to include the amount received from selling items from his collection as part of his trading receipts.
If he were only selling personal possessions he would not be regarded as carrying on a trade, but does the fact that he is carrying on a trade mean that the sums he receives from selling his own collection should be treated as part of his trading income? Some of the books in his collection are very valuable so we are talking about significant sums.
Query 20,259 – Librarian.
Will property sale compromise claim to NRB?
A chap has died leaving his residuary estate into a discretionary trust. The plan is to appoint out 75% of the trust to the children and his grandchildren but to keep 25% back for the one child. We will do this within two years of the date of death, while the estate is still being administered to secure reading back pursuant to IHTA 1984, s 144.
The estate includes a residence worth circa £600,000 and the total value of the estate is less than £2m and so the appointment will also assist with a claim for residence nil rate band (RNRB). His late wife left everything to him and so will claim her NRBs too.
The executors have already agreed a sale of the property, although we will not be able to exchange contracts until the grant of probate is issued. I had planned to date the deed of appointment when the grant comes in and then exchange contracts. I was of the view the appointment had to be made before there was a binding contract for sale. However, it is possible we will want to make a claim for loss relief for IHT on the property as a surveyor valued it at £650,000, so HMRC might say this is the probate value, but I do not think we can make that claim after an appointment.
There are other assets potentially liable to CGT/income tax and if we appoint out 75% of the estate now, it seems any subsequent tax liability then falls on the beneficiaries, as opposed to the estate, and we do not want that. I would, therefore, like to date the signed deed after the property has sold, when the estate administration is more advanced, but before its completion.
Will my plan compromise a claim to RNRB or will the s 144 treatment mean the claim is sound?
Query 20,260– Bluecoat.
Will storage unit rental trigger ITTOIA 2005, s 396B?
A client owns all the shares in a holding company, which itself owns all the shares in two trading subsidiaries. Our client, the shareholder of the holding company, is in his late 60s so he wants to retire and arrange the sale of the two trading subsidiaries (TS). The two TS have different trades, so there will be two different buyers.
Once each has been sold, with substantial shareholdings exemption (SSE) being claimed on the resulting capital gains, the holding company will be placed into members’ voluntary liquidation (MVL) so the proceeds can be paid to our client in capital format.
There is a slight wrinkle: the holding company also owns two storage units that it rents out. Their value is very modest: about £250,000 (by comparison, each TS is worth about £3m). The plan had been that the liquidator would distribute the two storage units to our client (capital gains would trigger, the corporation tax is acceptable). Our client would continue to rent them out on a personal basis.
We have been advised that ITTOIA 2005, s 396B could apply as the former shareholder would be carrying on an activity previously carried on by the holding company. Surely such an insignificant rental activity could not cause s 396B to bite and convert all the distributed proceeds from the sale of the two TS from capital into income?
Section 396B seems to be concerned with the company’s activity at the time it is placed into MVL. We cannot see any obvious ‘look back’ provision, so we suggest that the client buys the storage units from the holding company some time before the MVL takes place.
Are our concerns about s396B justified and, if so, is our suggested solution sufficiently robust?
Query 20,261 – Perplexed.
Is there VAT on wigs linked to medical care?
One of my VAT registered clients trades as a hairdresser/beautician and all of her work has been subject to VAT for the last ten years since she started trading. However, she has been supplying and fitting wigs for a customer who has suffered hair loss as a result of medical treatment. My client is being partly paid by the customer and partly by a direct payment from the NHS. My queries are:
- Is there VAT on the element of the payment from the NHS or is this outside the scope as a grant?
- Is there an argument that the full value of the supply should be zero rated or exempt as it is linked to the health issues of the customer rather than to improve her appearance?
Query 20,262 – Salon Sue.
Queries and replies
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