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Tax consequences of proposed gift of property.
A director of a limited company in which she has owned more than 5% of the shares for at least two years, owns a residential property that has been used by the company exclusively for the purpose of its children’s nursery business.
The property was purchased in 1997 for £150,000 and extended at a cost of £200,000. The current market value is £650,000. Until 2010 it was the director’s principal private residence and it is intended to gift the property to the company. This will be a transaction between connected persons resulting in a disposal for CGT purposes at market value and thereby realising a gain of £300,000. It is considered that holdover relief under TCGA 1992, s 165 will apply. This relief is restricted where an asset has not been used exclusively for business purposes throughout the period of ownership and so the held over gain, based on complete years for the purpose of this question, would seem to be £300,000 x 14/27 = £155,555.
The balance of the overall gain would be exempt as covered by the principal private residence exemption. The company would be liable to pay SDLT on the market value at the date of gift.
Because no chargeable gain arises on the gift of the residential property there is no requirement to make a CGT return within 60 days of completion. Do readers agree with all this or are there any other matters to be considered in connection with any aspect of the proposed gift?
Query 20,455 – Scholar.
Notifying HMRC of gift with reservation.
An individual (known as Mr X) who was domiciled in the UK, but lived in Ireland, was the appointed beneficiary of an offshore trust. He was appointed the main beneficiary in the 1990s on the death of the appointor.
- The trust was settled by a UK domiciled settlor.
- Mr X had a qualifying life interest.
- The qualifying life interest was terminated but the life tenant continued to benefit. So, Mr X reserved a benefit under gift with reservation (GWR) rules.
- Mr X died resident in Ireland, leaving no assets in the UK at all. As a result, no executors have been appointed for a UK probate, hence no IHT400 forms will be submitted, ie no IHT reporting by executors for the GWR. His executors in Ireland do not deal with the UK IHT reporting. There does not seem an appropriate IHT100 form for trustees to use to report the GWR.
How should the GWR be notified to HMRC and by whom? If trustees are obliged to do so, what form can they use or do they simply write to HMRC?
Query 20,456 – Guinness.
How is residence charged for capital gains tax?
I have a query concerning principal private residence relief (PPR) and I would be grateful for readers’ clarification.
I have a client who has just sold his former residence, which I understand he had been trying to sell for the last two years since he acquired his present residence on 30 September 2022. He did not move into it until 30 November 2022, owing to some redecoration and refurbishment to the property.
As it is more than two years since he acquired his present residence, it is too late to notify HMRC that his current residence is his private residence from that date.
If I nominate his current residence as his main residence from the time his former residence ceased to be main residence, which for CGT would be 30 November 2022 plus nine months, that would be 31 August 2023.
If, and when, he sells his current property in the future, I presume the period from 30 September 2022 to 31 August 2023 would be chargeable for CGT. Just as the period from 31 August 2023 till November 2024 is chargeable to CGT on the former residence.
Query 20,457– Adviser.
Should charity register for VAT?
One of our clients is a charity that provides counselling services to adults in the local community.
Some of the sessions come via GP referral but other clients will book a session directly online through the charity’s website. The purpose of the sessions is to help a person with their mental health challenges, and improving issues linked to anxiety and stress. The sessions are charged at £30 per hour and carried out by qualified counsellors who are remunerated for their services but they are not registered health professionals. If a customer earns more than £30,000 a year the hourly rate for sessions increases by £1 an hour for every £1,000 of annual income.
The charity’s annual fee income is £150,000 and it is not registered for VAT because it is a registered charity with the Charity Commission so the services are – it thinks – charitable activities and therefore ignored as far as the £90,000 sales threshold is concerned for VAT. I am not sure. What do readers think?
Query 20,458– Belmont.
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