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Personal allowance
EU citizens’ personal allowances after Brexit.
I have been speaking to a prospective client who has transferred a property to a bare trust for his grandchildren. They are currently aged three and five and are resident in Sweden. Neither has ever lived in the UK, but their father is a UK citizen.
As EU citizens, the grandchildren are currently entitled to the personal allowance each year in the UK, which covers the income arising. However, I have not been able to find any advice on what happens to personal allowances after Brexit. I am assuming that the allowance continues to apply until the UK eventually gets around to reviewing those rules.
If the allowances are no longer available to EU citizens, would the minor children qualify for the personal allowance on the basis of their father’s citizenship, in line with the domicile rules? Alternatively, would they be denied the allowance because they do not personally qualify as UK citizens?
I look forward to hearing from Taxation readers.
Query 19,683 – Minor.
Profit or capital gain?
Taxing valuable image painted on a main residence.
I was intrigued by the story of the property owner who woke up one morning to find that the side wall of her house had been painted by the world-famous artist, Banksy.
I would not want to get too caught up in the aspects of that particular case, but does it give rise to potential tax implications because it seems that Banksy does paint on various public and private properties?
Let’s say that someone has lived for many years in a property that is their main residence. The property is for sale, but a Banksy painting appears on the wall of the house meaning that the value of the property is substantially increased.
Assuming the property sells for that increased value, is there a capital gains tax liability on part of the sale proceeds or is the whole amount exempt under TCGA 1992, s 222? What is being sold here – a dwelling house or a dwelling house and a piece of art? If the latter, might the excess be liable to income tax rather than capital gains tax? Could VAT apply as a trading transaction? And what might happen if, say, the plaster on which the image was painted was removed and sold separately? Is that now just a taxable painting or is it still part of an exempt main residence?
Thinking about it, can the painting scenario be compared with, say, a property with a large garden that is granted planning permission for more houses to be built on the plot?
We can but dream and I suppose the chances of one of my clients finding a Banksy on their property are slim, but I would be interested in the thoughts of Taxation readers.
Query 19,684 – Art.
Transferring shares
Share transfer for benefit of grandchildren.
We have been asked to advise the controlling shareholder in a small trading private limited company. He wants to know about transferring shares to his grandchildren either out of his own holding or by way of alphabet shares. Obviously, this would be to enable them to take advantage of their own tax allowances. They do not have any other income so this will, for example, help with school fees.
This is a complicated issue bringing in capital gains tax, inheritance tax and income tax, not to mention trusts.
It has been suggested, for example, that the shares could be put into a bare trust for minor grandchildren so as to keep control of the holding. The dividends could then be mandated direct to the beneficiaries, so avoiding the need for tax complications by way of simplifying the administration for the trustees.
What do readers think of this approach? Is it likely to be effective or are there potential problems?
Query 19,685 – Addis.
Output tax
Timing of output tax on property sale.
A client is selling a commercial property for £500,000 plus VAT. He opted to tax the unit when he bought it about eight years ago and has always traded from it and not sublet it to a tenant.
The current agreement is that £350,000 will be paid by the buyer now, with further payments of £100,000 and £150,000 to be made in the future when the buyer can get the funds together – which is likely to be in about 12 months’ time. In the meantime, my client will continue to retain occupancy of part of the site until it is fully paid for and from which he will run his own business.
As I understand it, the key issue for VAT purposes is when the title is transferred to the buyer which, in this instance, will not be until the final instalment has been paid.
However, the buyer has asked for a tax invoice now for £500,000 plus VAT so he can claim input tax. This is not a problem for my client because he uses the cash accounting scheme, so an invoice is irrelevant. But will he have to account for output tax on the payments when received, or only on completion date when the title deeds are transferred to the buyer?
Readers’ thoughts would be very much appreciated.
Query 19,686 – Speculator.
