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Gift of painting outside client’s will.
My client died a few months ago. It has come to light that shortly before her death she said to a close friend: ‘you can have the painting which is hanging over the fireplace in the dining room’.
The friend was a not a beneficiary under her will. It turns out that the painting is much more valuable than my client realised. I’m trying to work out the tax consequences. Had she changed her will, then the painting would have attracted the normal CGT uplift on death but been part of the estate for IHT purposes. A lifetime gift would be a market value disposal for CGT but not fall into the estate for IHT purposes. I am aware, though I have never dealt with this before, that a gift in contemplation of death (donation mortis causa) is treated as being made on death and hence does not give rise to capital gains tax but remains in the estate.
Have I got this right? Assuming I have, how do I go about determining whether this was a gift in contemplation of death. My client knew she was dying when she told the friend she could have the painting, but the friend can’t now remember whether she actually used the words ‘when I am gone’.
Any help here would be much appreciated.
Query 20,343 – In memoriam.
Concern as NICs are not charge on profits.
I’ve seen some suggestions online recently that Class IV NICs are not due on transition profits. I am sure that that is not correct but what caused me some concern was that apparently some software is not applying NICs to those profits. First of all, can readers confirm my understanding that NICs are due?
Then the more interesting part – if there is a software problem, where does responsibility lie if a client is penalised for an incorrect return? There do seem to be several problems emerging with the way that at least some software is dealing with the changes to the basis period rules.
Query 20,344 – Trusting.
VAT registration dilemma for builder.
I was interested in the recent replies to reader query 20,039 and whether a business that was not registered for VAT would have to register with the forward-looking test if there was a one-off contract for £100,000. The replies seemed to offer different thoughts, according to whether it was a single or continuous contract.
My situation is similar but for a builder client:
- he has not traded for 12 months because of a back injury;
- he has never registered for VAT because previous work has been labour only ie, less than the registration threshold;
- he has agreed a contract for £100,000 with a private client to build an extension to his house, which is made up of materials (£80,000) and labour (£20,000);
- the agreement with the client is that he will invoice and be paid for the materials in four stages: the end of month one £25,000; the end of month two £20,000; the end of month three £20,000; the end of month four £15,000. He will then invoice his £20,000 labour at the end of the job, which will be month five;
- he will have no other income for the duration of the contract.
My question is: does he need to register for VAT now because he has agreed a £100,000 deal which exceeds the £90,000 threshold? Or does the agreed payment arrangement save the day? Will he need to register at the end of month five with the rolling 12-month test based on historic sales, even though this is a one-off contract and he will be a labour only builder thereafter, earning about £60,000 each year?
Query 20,345 – Number Cruncher.
Will business split avoid an Airbnb problem with VAT?
A husband-and-wife client are VAT registered and trade as a hairdressing partnership; they also own a buy-to-let house in joint names, so they are partially exempt as far as their VAT registration is concerned but claim all of their input tax with the de minimis rules.
They have now decided to rent out the property to short-term holiday makers and temporary visitors – rather than through short-term tenancy agreements – so the income will be subject to VAT with the new arrangement. The client has asked if they can form a new limited company for the new activity, which will not need to charge VAT to the punters because its annual income will be less than the registration threshold of £90,000. The existing partnership would charge rent to the company at market value, which would presumably still be exempt from VAT because the partnership is not making supplies through Airbnb, only the company. Is this correct? Does this structure work as far as VAT is concerned, and are there other risks or issues that we must consider before giving the clients the green light to proceed?
Query 20,346 – Sassoon.
Queries and replies
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