.png)
.png)
Can company owner make donations to foreign charity?
My client has a successful company and has also founded a UK charity which has completed the construction of a hospital in sub-Saharan Africa – a project the charity managed itself. He now wants to support further projects within the objects of his charity, but he thinks that the best way of doing this is by making grants to local organisations.
I am fairly sure that direct gifts to a foreign charity by him or the company cannot enjoy UK tax relief; but is there anything to stop him or the company making donations to the UK charity (with gift aid for income tax or corporation tax), which then can be passed on to an African charity?
The trustees of the UK charity will make sure that the money is spent as intended and the grants are within the UK charity’s objects. Am I correct in believing that tax relief will be available, and if so what records would readers advise the UK charity to keep?
Query 20,199 – Baobab.
Is relief available for income from home rental?
My client and her partner both have a few months off work and are planning to go away on holiday in Europe for a few weeks and stay with family members (in the UK) for a few more.
They intend to rent out their family home on Airbnb for about a month while they are away.
They expect gross rents to be around £6,000 in this period. They believe they might be entitled to rent-a-room relief during this period and that no income tax will be due on the rents. I would be interested in readers’ thoughts on the situation.
Query 20,200 – Coffee Mate.
Should rental income be taxed on company or individual?
A client, Mrs A, is UK resident and owns three UK residential rental properties which are mortgage-free.
Many years ago, before we acted, she formed A Ltd, of which she is sole director/shareholder and the arrangement ever since is that the company lets the three properties to the tenants and receives the rent and pays corporation tax thereon.
HMRC is challenging this arrangement and is insisting that for property income to be taxed this way, the beneficial interest must be evidenced in writing. HMRC is referring to PIM1020 and TSEM9912 and is asking for declarations of trust. The department is looking to assess Mrs A personally on the rental income ab initio. We have put it to HMRC that questions of legal/beneficial ownership are not relevant, it is simply a landlord/tenant/subtenant situation.
There is no written lease between Mrs A and A Ltd. But the leases with the tenants are properly drawn up between A Ltd and the tenants.
There is an established rent-to-rent sector in the UK and the situation here is no different, except Mrs A is connected and has not charged A Ltd any rent. It is common for directors to allow companies they control to exploit their assets, for example trading premises and plant, and often for nil consideration and HMRC have no difficulty with that.
We have pointed out that ITTOIA 2005, s 271 states that in respect of property rental income: ‘The person liable for any tax charged under this chapter is the person receiving or entitled to the profits.’ In our view this is clearly A Ltd as the rental agreements are between the tenants and A Ltd and the profits flow from that and should be taxed accordingly. The tenants may not even be aware that Mrs A is the legal owner.
The arrangement is not simply a right to a passive stream of income. The company has also borne the costs and hassles such as repairs and recently substantial legal costs in getting rid of problem tenants.
There is an additional injustice in that HMRC is seeking to tax the income in full and has stated ‘for any returns previously submitted to include income from property outside of your own self-assessment please look to amend these’. Clearly we are outside the window to amend CT returns so surely it is unconscionable for HMRC to seek to tax it again?
Who is right? How do we proceed?
Query 20,201– Red Acer.
Is there VAT on sale of company yacht?
One of my wealthy clients purchased a yacht in his limited company six years ago for £1m plus VAT but did not claim any input tax because it was linked to private use and business entertaining activities. However, £80,000 input tax was apparently claimed on £400,000 of improvement costs incurred in the following two-year period, on the basis that this would enhance the value of the yacht if it was sold in the future and HMRC would get output tax.
The client has now accepted an offer for £2m to sell the boat but we are unsure whether the sale will be subject to VAT. One of my colleagues said that we should only charge VAT on 50% of the proceeds because of the private use block of input tax, although the block was 100%. Another colleague said that we should not charge VAT on the sale but account for output tax on the profit with the second-hand margin scheme. And another school of thought is that we should charge VAT on £400,000, to contra the input tax of £80,000 claimed on the improvements costs.
What do readers think of the suggestions here? And was the company wrong to claim input tax on the improvement costs?
Query 20,202– Sinbad.
Queries and replies
Send queries and replies to taxation@lexisnexis.co.uk. For full T&Cs visit: tinyurl.com/RFguidelines.
