New queries: 9 January 2020

Running scared

My client has built up a successful company and is looking to sell it next year for several million pounds – there is negligible base cost.

He has based his plans on the availability of capital gains tax entrepreneurs’ relief and he meets all of the qualifying conditions. He is now very concerned that the relief may be in doubt and has asked me whether there is anything he can do this tax year to preserve his entitlement.

If he were to set up a trust in which he was a beneficiary a disposal to that trust would be a market value disposal on which entrepreneurs’ relief would be due and so the trustees would take over the shares at current market value. Any gain on a subsequent disposal of the shares would depend on the tax rules in place at that time but if there were no changes to the current rules my reading of the Skinner case suggests that entrepreneurs’ relief would (subject to the lifetime limit) also be available. But even if it were not available, relief would have been preserved on the bulk of the gain, which had accrued before the disposal.

My client has also suggested that he might gift the shares to his adult son to preserve relief and that when his son ultimately sells the shares he could give the proceeds back to my client. I have counselled against this on the basis that HMRC might well argue that the son was in reality a nominee for his father and ignore the ‘gift’.

What are other advisers doing in these circumstances? Would any trust planning fall foul of the general anti-avoidance or abuse rules or of the strictures within the Professional Conduct in Relation to Taxation guidance?

I hope Taxation readers can help.

Query 19,491 – Optimist.

Mish-mash

I am encountering various instances when company directors are obtaining finance personally and then using the funds to buy machinery and vans for their company’s use. This is because they are unable to obtain finance through their company. The assets are used 100% for company business use.

Sometimes, in such cases, the directors arrange for the monthly payments to be paid by the company. Alternatively, some make the payments personally.

My questions are as follows.

• Can the company reclaim the VAT on the purchase of an asset?
• Can the company claim capital allowances on the plant or machinery?

I hope that Taxation readers can answer these points. For the future, is there any particular way or best approach that should be used in such situations to avoid tax problems?

I should be grateful for replies.

Query 19,492 – Lewis.

New camera

My self-employed client uses specialist photographic equipment in his business. Following a minor dispute with a supplier, he was given a £400 voucher to use towards the purchase of a new camera. He has used that voucher when buying a new camera costing £600, therefore paying just £200.

My initial thought is that my client should be treated as paying £167 plus £33 for VAT. In other words, he will be able to reclaim £33 input tax and the balance of £167 will be available as an annual investment allowance.

However, the retailer has issued a VAT invoice showing the price as £500 plus £100 for VAT, of which £400 was satisfied through the voucher and the balance of £200 by cash. That would suggest an input tax claim of £100 and an annual investment allowance claim of £500 would be acceptable.

So far as the VAT is concerned, the retailer has seemingly accounted for £100 and therefore the overall situation seems fair. Is this correct?

Query 19,493 – Alexis.

CGT calculations

Can Taxation readers advise on the capital gains higher rate charge?

I assumed that the basic rate band remaining for the lower rate (the gain related to residential property so the rate should be 18%) would be £34,500 for 2018-19 less the income charged to basic rate tax. However, my client has £800 interest and £100 dividends charged at 0% and this £900 has also been deducted by my software in calculating the amount charged at 18%.

I have a suspicion that this may be correct, but I would like to be sure. If readers could run the figures through their own software systems, and perhaps explain to me what is going on here, that would be very helpful. The relevant numbers are as follows.

• Employment income £36,000
• Property income £5,000
• Interest £800
• UK dividends £100
• Taxable gain on residential property after the annual exemption £12,000

I thought the 28% rate would apply to the top £6,650, but the software charges it on £7,550. I also think the client still qualifies for the married couples allowance transfer but that is not allowed in the basic rate band calculation. I understand this is given as a tax credit, but I am surprised that the savings income reduces the basic rate band.

I look forward to an explanation. I hate to use the word, but it seems ‘unfair’ that a liability should arise at 28%.

Query 19,494 – Einstein.

Issue: 4726 / Categories: Forum & Feedback