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Family company
Apportioning interest on purchasing company shares.
My clients are an unmarried couple A and B who have recently purchased shares from A’s father in the family trading company. The purchase was funded partly from cash savings and partly by way of a bank loan.
They have now provided the information for preparation of their self-assessment tax returns and the loan is in joint names because it is secured on the jointly owned property. A is a higher rate taxpayer, but B has little income apart from the dividends that will now be received on the shares. The loan balance is less than the purchase price of A’s shares.
Can Taxation readers tell me whether I am able to claim the whole of the interest paid on the loan against A’s income, or must I apportion the interest charges between A and B?
I look forward to replies and advice on this subject.
Query 19,395– Passerine.
Share portfolio
Qualifying for business property relief on shares.
Our client, Mr Brain, died leaving an estate worth in excess of £1m, and at death, he owned an AIM share portfolio valued at £320,000. The holdings are all such that would qualify for business property relief as unquoted shares.
Although the portfolio as a whole has been held for a number of years, far in excess of the two-year minimum holding period, there are seven shareholdings that have been identified that were not held for two years before the date of death. However, all identified holdings have been purchased following a prior sale of a similar holding in order to ensure the portfolio is reinvested as soon as possible. Cash is only held for very short periods before reinvestment in qualifying property.
While we are satisfied that the shareholdings held within the portfolio cover at least two out of the last five years, as required for replacement property provisions under business property relief, is the ‘replacement property’ the portfolio as a whole, or is it the individual holdings within the portfolio?
If the latter, do the replacement property provisions permit the two out of five years requirement to be fulfilled with more than one successive item of replacement property, if the individual replacement property shareholdings in question have also been held for less than two years?
I look forward to hearing from Taxation readers.
Query 19,396– Confused.
Shifty business
Election requirement on value shift to subsidiary.
My client is a trading company which is a wholly-owned subsidiary of a passive holding company.
Recently, in order to incentivise two employees and directors of the trading subsidiary, they have each been allotted, free of charge, 5% of the issued share capital in the trading subsidiary. This is by way of issuing new shares.
The appropriate return has been made under the employment related securities legislation. The valuation of the shares is not large because the company’s profits at present are modest.
The relevant elections have been signed under ITEPA 2003, s 431 and retained by me on file.
My query relates to the value shifting position here. Clearly, the holding company has, in effect, brought about a value shift insofar as it no longer owns 100% of the trading subsidiary, merely 90%. The holding company is solely owned by three individuals.
Is it necessary for the holding company’s shareholders to submit elections under TCGA 1992, s 165 to guard against any charge arising on them under the value shifting rules?
Readers’ thoughts would be welcome.
Query 19,397– Partridge.
A matter of timing
Tax point dilemma on VAT invoice of building business.
One of my clients, a major building contractor, recently submitted its VAT return for the quarter ended 30 June 2019. This was its first return under the new Making Tax Digital procedures.
The return was for a £50,000 repayment, which concerned my client (the business normally pays tax) so he asked me to review the figures.
I identified that a final invoice – relating to a major contract for building work undertaken for a hotel group – was issued on 3 July for just over £600,000 plus VAT. In fact, my client finished the job on 12 June.
Apparently, he and the surveyor in charge of the job took a long time to agree the final account, not helped by the fact that they both had weeks away from the office due to holidays.
My concern is whether the business should now complete a VAT652 error correction form for just over £120,000 for the June 2019 period, on the basis that the invoice was raised more than 14 days after the work was finished, and therefore the completion date rather than invoice date is the relevant tax point according to VAT Notice 700, paragraph 14.2; in other words, 12 June.
Alternatively, is 3 July the relevant date as far as the 14-day window is concerned? This was when my client was able to issue the final invoice because all the numbers had been agreed.
Help from Taxation readers would be greatly appreciated.
Query 19,398– Gentleman Jack.
