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New queries, issue 4264

20 July 2010
Issue: 4264 / Categories:
All has gone quiet on a VAT enquiry; classification under the flat-rate scheme; tax planning with trusts; sale of house owned by non-dom taxpayer.

All gone quiet

One of my clients had a VAT compliance check in the summer of last year. One or two discrepancies came to light and these could result in significant additional VAT liabilities.

However, following our provision of additional information to HMRC over the winter, I have not heard anything from the department since.

Naturally, my client is not exactly in a hurry to pay any additional VAT liability, but what is our legal position here? Will this matter fall ‘out of date’ at some point and is there a time limit by which HMRC must reply to us and advise us of any additional liability?

I presume that their service standards might set out response targets, but are there any legal obligations on the department?

Similarly, are there any obligations on us to remind HMRC that their enquiry has not been completed?

I look forward to Taxation readers’ thoughts on this matter.

Query 17,644 – Shush.

Time for a change

My business has been registered for the VAT flat rate scheme for a couple of years now and I had assumed that I would be covered under the generic heading of ‘accountancy and book-keeping’.

However, my business is as a personal tax consultant preparing UK (and US) personal tax returns for a range of individual expatriate clients. I am now wondering whether I should instead be classified under the lower rate of ‘business services’.

I called HMRC’s VAT helpline to ask for their advice on this matter, but they simply told me that it is for me to decide which category applies, but they seemed unable or unwilling to tell me what the ‘accountancy and book-keeping’ category actually does include.

If I make a claim to HMRC to change my categorisation, can readers give me any advice in this regard or tell me whether there are any HMRC (or other) guidance notes on this subject. Also, can the change of category be backdated?

I look forward to advice from Taxation readers here.

Query 17,645 – Changing Man.

Dropping the pilot

If a testator leaves property in his will to an existing interest in possession pilot trust, will that qualify as an immediate post-death interest (IPDI) and thus avoid the ten-year charge?

IHTA 1984, s 49A requires that ‘… the settlement was effected by will …’.

The pilot trust was originally created in 2005 with a nominal £10. Does the gift in the will (probably £500,000/£600,000) comply with s 49A, or is it merely an addition to an existing settlement?

Taxation readers’ views on this subject together with any other tax planning points or suggestions would be very welcome.

Query 17,646 – Bismarck.

Date of purchase

My client has lived in the UK for about 15 years. He is a UK citizen, but was born abroad and I would imagine that he is non-UK domiciled; however, the issue has never arisen in practice as he has no offshore income.

In addition to their main residences, he and his sister have jointly owned a property in the UK for about 14 years. The property is currently sitting at a fairly substantial capital gain.

The funds to buy the property were provided by my client’s father who transferred monies to the solicitors who were acting for the family, but the names on the title to the newly purchased property were my client and his sister.

The understanding was that the property would be available for the use of the father and his wife when they visited family in the UK.

I am not aware that there were any tax implications on that score as the parents had no UK source of income other than a modest bank account here.

The property has been let once or twice for fairly short periods, but probably no more than a year or two.

My client has advised me that his father died recently and he mentioned that he feels that the property is now his and his sister’s to do with as they wish.

This started me wondering what the date and cost of acquisition actually is. I had assumed that it was 14 years ago at cost, but I am now wondering if there was any argument that they were holding this in trust for the father and that they have now inherited it from him.

My client tells me that if his father had wanted to sell the property and use the proceeds for some other purpose, they would have obeyed his wishes and returned the sale proceeds to him.

If the property were to be sold, do readers think that there are any grounds for arguing for the more recent acquisition date and higher cost?

I look forward to replies.

Query 17,647 – Chang.

Issue: 4264 / Categories:
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