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A question of time
Optimising the current rates of inheritance tax reliefs.
I understand that there is concern that future governments could reduce the availability or the current rates of agricultural property relief (APR) and business property relief (BPR). I am therefore looking at options to ‘bank’ the present attractive rates of relief.
While taking into account the capital gains tax and other practical considerations, my thoughts are to look at transferring relevant property now to secure these inheritance tax reliefs.
It seems that APR and BPR would only become relevant in the event of the transferor dying within seven years from the date of the transfer because, if seven years pass from the transfer, the property will then fall out of the transferor’s estate and no further inheritance tax reliefs are needed.
On APR, HMRC’s Inheritance Tax Manual at IHTM 24140 states that for a potentially exempt transfer that becomes chargeable as a result of the donor’s death, the rates at the date of death apply.
This suggests that if a transfer is made now, but the rates of APR are reduced before the death of the transferor, and the death occurs within seven years, then the reduced rates of APR at the date of death would apply to the transfer, not the rates in place at the date of the transfer.
Please could readers let me know whether my understanding is correct and, if so, are there any other strategies for securing the current rates of relief.
Query 19,331– Sonata.
Carry back
Tax reliefs on enterprise investment scheme.
A client of mine made an enterprise investment scheme (EIS) investment in December 2014 of £200,000 and the shares have recently been sold during 2018-19 for a significant gain, well after the three-year holding period.
In the year of the investment, the client had little income and the income tax relief for 2014-15 was only £128. Is the fact that there was income tax relief, albeit minimal, enough to obtain capital gains tax relief in full?
Also in 2014-15, a capital gains tax deferral of £22,000 was claimed, so this will come back into charge in full in 2018-19. But a capital gains tax deferral claim for £32,000 was also carried back and made in 2013-14, when a different EIS investment had been made and that earlier investment covered all the income tax due for the year. I assume that full capital gains tax relief for the 2014-15 investment can still apply because there was some income tax relief in 2014-15, although there was no income tax relief in 2013-14.
There will be a further £32,000 capital gains tax deferral relief brought back into charge in 2018-19. Consequently, there will be a total gain of £54,000 chargeable in 2018-19.
Could Taxation readers confirm whether this is correct?
Query 19,332– AM.
A long story
Only or main residence relief on former matrimonial home.
A husband (H) and wife (W) decided to buy a plot of land from W’s parents to build a new home. The plot included part of the parents’ home and planning permission was granted in March 2015. Subsequently, work on the new home started and H, W and family continued to live in their existing family home.
In June 2016, the plot was transferred from W’s parents to H and W in equal shares for £185,000.
In August 2016, H and W sold their home to fund the ongoing building work and moved to rented accommodation.
In November 2016, there were marriage difficulties and H moved to other rented accommodation. After staying with her parents for a month, W moved to the newly completed house with their two children.
In May 2018, H and W divorced. The house was valued at £877,500 less sale costs of £26,325 and was treated by the court as the matrimonial home. Under the court settlement, W paid £200,000 to H and she gave up any claim to his savings, pension and car. In return, H transferred his share of the new house to W and she took out a mortgage to pay the settlement and intends to continue living in the new property.
My questions are as follows.
- Does H have any possible claim to only or main residence relief for the new house? Could extra-statutory concessions D6 and D49 or W’s occupation of the property help here?
- If relief is not due, what would be the deemed proceeds of disposal for capital gains tax purposes and is there any discount for the wife’s occupation? The £200,000 represented only about 25% of the value of the property?
- Would the acquisition cost be the half share of the purchase price of the plot plus building and associated costs?
I look forward to readers’ replies.
Query 19,333– Juggler.
Charitable matters
What is rent for VAT purposes?
A charity client occupies an area of woodland and some buildings owned by one of the trustees. There is an informal licence agreement for the occupation of the land and buildings under which the charity pays £100 a month. This is described as ‘contribution to costs’. The trustee is a farmer and has raised monthly invoices for £100 plus VAT.
The charity has asked me whether this is right. The thinking is that if the payment is actually rent, perhaps no VAT should be charged.
I know this is a small matter, but the charity feels that it has an obligation to save every pound it can.
What do readers think?
Query 19,334– Sweet Charity.
