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Buy to let
Transferring a portion of a buy to let property.
My client is a pensioner who has recently remarried. He owns a buy to let property and currently pays higher rate tax on the profits of that property rental (there is no mortgage so interest deductions are not relevant here).
He has read an article in a newspaper that suggested he can transfer 1% of the buy to let property that he currently owns outright to his wife, with the desired effect being that they can then submit their tax returns on the basis that the property income is split 50:50, thereby taking advantage of the fact that his wife is a basic rate taxpayer.
Is the article right on the income tax advantage? Are there any capital gains or stamp duty land tax traps that we should be aware of?
Given his age, I am also conscious of his intention to leave the property in his will in a trust so that his wife has the benefit of the income from the property during her lifetime, then to be passed on to his children (from an earlier relationship) after her death. Would the transfer of 1% of the property to her now jeopardise that arrangement?
I look forward to hearing from Taxation readers.
Query 19,715 – Abi.
Conversion
VAT rate applicable to driveway.
I have a client who has a substantial house with barns at the back of the property. He has planning permission to convert the barns into holiday cottages.
As part of the planning permission, the existing access to the road will be blocked. Instead, a new gateway will be created. Once on the property, the driveway will split to provide a new access to the existing house and a driveway to the new holiday cottages at the back. At the end of this driveway, there will be a parking area with designated spaces for people using the cottages.
The conversion of the barns should qualify for the reduced VAT rate as the conversion of a property that has never been lived in to buildings designed as dwellings. There also does not seem to be any restriction on the separate use of the dwellings or their separate disposal.
My question is on the rate applicable to the driveway. The legislation states in VATA 1994, Sch 7A g 7 note 5(1)(b)(i) that qualifying services include ‘the means of providing … access to the premises’. However, this is restricted to ‘within the immediate site of the premises’. That seems to me quite a vague term and I have not had to consider it before.
Have any Taxation readers had experience of the way in which HMRC interprets this point? It would very useful if I could give my client assurance based on previous HMRC practice but equally if there is a potential problem I would like to be able to warn him about it in advance.
Query 19,716 – Worrier.
Residence status
Residence test on UK property disposal.
Having recently completed the tax return of a client who has always been non-UK resident and who disposed of a residential UK property in 2019-20, I was wondering whether UK-residence at an earlier point would make a difference to the tax treatment.
In other words, if a UK resident leaves the UK in 2021 (with no intention to return) and subsequently disposes of UK residential property – would the provisions applicable to disposals by non-residents (such as an optional 2015-rebasing election or a time apportionment of the gain) be available by virtue of the non-resident status at the time of disposal? Alternatively, would the former UK-resident status deny this treatment (and presumably tax the non-resident on the basis as a UK resident)?
Readers’ comments would be much appreciated.
Query 19,717 – Brexitor.
Deregistering for VAT
Is deregistration possible post Brexit?
My client sells teaching books online (business-to-consumer (B2C)) and also has advertising revenue from his website (business-to-business (B2B)). He charges a fee to subscribers of another website he owns, linked to dating services (B2C).
He is VAT registered in the UK. He uses the services of subcontractors based in Ireland to produce the materials for the books. He is VAT registered because the annual UK income plus payments to the Irish based suppliers exceeds £85,000. He has also charged UK VAT on fees received from EU customers (B2C) – about £7,000 a year in total (dating subscriptions and online e-books). There are no sales outside the EU.
As I understand it, the EU sales of £7,000 (B2C) are no longer subject to UK VAT post Brexit. Is that correct? He has also decided to use English instead of Irish based subcontractors from 1 January to avoid potential Brexit problems.
My thinking is as follows: the removal of £7,000 of turnover from UK VAT and with payments to the Irish suppliers also ending means his total sales in the next 12 months will be £90,000, of which £15,000 is from advertising revenue earned from Google and Amazon which are both based outside the UK. Can my client now deregister from UK VAT?
Readers’ thoughts would be welcome.
Query 19,718 – Romeo.
