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Does business carry out trading activity for BADR?
The business of this close company is the trading of quoted shares. The husband and wife, who are directors/shareholders, carry out around 10 transactions per annum, spending around five hours a day, following a specific work pattern of analysing and assessing and selecting the characteristics and merits of individual companies. Each transaction (purchase or sale) has a value of around £150,000.
There have been net gains from sales for the last few years of an average of £300,000, on a portfolio cost and market value of £5m and £20m respectively.
The couple have no other business interests, and the query relates to whether HMRC would consider the company to have trading activity for the purposes of business asset disposal relief, in the event that the company were to close, and distribute the proceeds to the shareholders, and also considering the guidance under BIM56800.
Query 20,379– Old Cardiffian.
Can first-time buyer wife claim relief?
I have met with two potential clients – husband and wife – regarding a separate matter, but in passing they mentioned that they are looking to move home before any potential changes in the SDLT rules are considered.
The husband bought their current property shortly before meeting his wife in 2018. She moved in in 2020, and they were married in late 2023. She had always rented beforehand and has never purchased a property. She has not been put on the Land Registry as a joint owner, nor on the mortgage for their current home since they married.
They now have equity of approx. £200,000 which they wish to use as a deposit on their next home; they will sell their current home in order to buy the new one rather than remortgage. The equity is effectively the husband’s, and he intends to gift this to his wife so that she is the sole purchaser, and for the new mortgage to be solely in her name as she earns considerably more than him and can afford the mortgage on her own.
My question is, setting aside any risks for the husband of making such a gift, will the wife qualify for first time buyer’s relief up to £425,000 providing the property is below £625,000? Or is she affected by the fact they are married and is being gifted the sum by her husband?
Query 20,380 – Newlyweds.
Where is my adopted client domiciled?
My client is a very successful entrepreneur and business adviser who has built an international career over many years. He was born in England to British parents and lived here as a child. He went to university in the USA and, since then, he has lived in many different parts of the world – never settling anywhere for long. He is currently back in England but this will probably only be for a few years before he is on the move again.
He and I have always worked on the basis that he has a UK domicile because his father and mother were domiciled here. Because he has never had a domicile of choice elsewhere, his domicile of origin in the UK (strictly England and Wales) has never been revoked.
His elderly parents have just died soon after each other and, in going through their papers, he has discovered to his shock that he was adopted at birth. His natural mother was a young French girl who got pregnant when she was in the UK for a one-year postgraduate course. He doesn’t know who the father is. He was given up for adoption almost immediately after his birth.
He has asked me whether this affects his domicile status. If he took his domicile status from his natural mother he would be domiciled in France and, as he has never put down roots in the UK, he would not have established a domicile of choice in England. So, is he a non-dom? I know that the importance of domicile in the UK tax system is diminishing and may eventually disappear, but he is anxious to see whether his newfound status as a non-dom (if that is indeed what has happened) can be turned to his advantage.
I’ve never come across anything like this before and I am at a loss to know how to advise him. Can readers help?
Query 20,381 – Perplexed.
Does piano sale create a VAT adjustment?
One of my clients is VAT registered as a sole trader and she purchased an expensive grand piano for £8,000 plus VAT with a view to giving lessons to students. I told her that she did not need to account for output tax because the lessons qualify as exempt from VAT as private tuition but that she could not claim input tax of £1,600 on her return because of partial exemption.
She gave lessons for about six weeks but then received an offer from an American music lover to sell the piano to him – he offered £13,000 plus VAT and my client accepted the offer. My client has asked if she can now reclaim the VAT of £1,600 on the original purchase of the instrument and my understanding is that the answer is ‘yes’ because of the payback and clawback rules. We can include the £1,600 VAT on the next return – I think – because the adjustment is less than the VAT error correction limit of £10,000.
Is my thinking correct or am I playing the right notes but in the wrong order? Query 20,382 – Chopin.
Queries and replies
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