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Does transferring beneficial ownership trigger CGT?
I act for a farming partnership, the partners being father, mother and two sons. As part of an inheritance tax planning exercise, the partners will be introducing their individually owned assets to the balance sheet with a view to obtaining business property relief on let farm buildings and cottages in line with the Balfour and Farmer cases.
Under the partnership agreement, the partners will retain the beneficial interest in property they introduce to the partnership so that no CGT arises and the introduction will be reflected by the creation of land capital accounts.
Ideally, we would like to transfer some of the cottages between the partners, but the direct transfer of the cottages would result in significant CGT liabilities and we have already used up their nil rate bands with other gifts into discretionary trusts. So, if further trusts were used, IHT would be payable at the lifetime rate.
The acting solicitor has suggested that, once introduced to the partnership, the transfer of the beneficial interest in the cottages could be achieved by making a gift of an appropriate amount of a land capital account, the gain on which could be held over. It seems to me that the transfer is of the beneficial interest in a let cottage and the movement in the land capital accounts simply reflects that, so a CGT liability would arise.
What do readers think?
Query 20,087 – Seeker.
Advising musician about capital allowances.
One of my clients is a semi-professional musician. She plays in a number of orchestras, ensembles and for shows. Sometimes she gets paid but at other times she plays for pleasure or to make contacts who might, in future, give her paid work. She also does some instrumental teaching. This doesn’t provide her with enough income and she also does ad hoc jobs (ie delivery work).
All of the income she receives from playing and teaching is declared as a single source in her trade as a musician.
She has recently purchased a second-hand double bass for £10,000 – this is a high quality instrument which will probably last her a lifetime if looked after properly. It is within the de minimis amount, so long-life asset treatment will not apply, but should capital allowances be restricted for private use? It would be quite difficult to say for each and every unpaid engagement why, in particular, she took it on. I don’t think that she would have paid so much for an instrument had she been playing purely for pleasure.
What approach should I adopt when advising her about capital allowances?
Query 20,088 – Pizzicato.
Is CGT applicable when selling antique almanacks?
My client owns a number of 19th century Wisden Cricketers’ Almanacks. Some of these are now selling for sums between £2,000 and £5,000.
If he sells each one individually I believe that the chattels exemption will apply and no CGT will be payable. But what happens if he sells a group of them together? I appreciate that if he sold a run of, say, the first ten issues, that would be a set and the special rules would apply. But if he sells a selection of early titles which don’t form part of a consecutive run, would that be a set if they are sold to the same individual? I think not, but I would welcome readers’ views.
My client is not in the book trade and I don’t think that there is any risk of disposals being taxed as trading income.
Query 20,089 – Cricketer.
VAT challenge with past invoices.
One of my clients, H, is based in Germany and hires plant and equipment to an associated company incorporated in the UK (S).
Our original view was that S was also established in Germany because it has no business or fixed establishment in the UK, so this produced the strange outcome of H having to register for UK VAT and charge 20% VAT to S.
This is because all hiring takes place in the UK so the ‘use and enjoyment’ rules are relevant for the place of supply. S could not register for UK VAT because its only customer is VAT registered in the UK, ie the reverse charge is applied by the customer to invoices issue by S. To claim the VAT charged by H, a 13th directive claim was submitted by S to HMRC but rejected.
Following liaison with HMRC, it has been agreed that S can register for UK VAT and this has been backdated to the date of incorporation two years ago. However, what is the correct way of dealing with the past invoices raised by H? Future invoices will be subject to the reverse charge by S and no UK VAT will be charged by H.
Should S claim input tax on its first long-period VAT return for these past invoices or must H treat the VAT charged as an error on its own UK returns – on the basis that the reverse charge now applies – and submit form VAT652 to HMRC and refund the VAT to S? The amount of VAT exceeds £10,000.
Readers’ thoughts would be appreciated.
Query 20,090 – Merk.
Queries and replies
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