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Will trust
Life interest shares of deceased beneficiaries.
I act for a trust set up by the will of someone who died in 2009 with life interest to their widow and the remainder to Tom, Dick and Harriet.
The widow has died recently. It now turns out that Tom died in 2013 and Dick followed in 2015, while Harriet is still alive.
From my internet research (tinyurl.com/y4xt38cw) it appears that Tom and Dick are still entitled to their shares if the trust deed did not impose any conditions. This would mean that their shares are added to the remainders of their estates and devolve according to their wills (rather than going ‘per stirpes’ to their surviving issue).
Do Taxation readers agree that this is correct and, if so, how does it work for inheritance tax? If Tom and Dick left estates above the threshold and the remainder was left to chargeable beneficiaries, is there more inheritance tax to pay years after they died?
Query 19,675 – Lazarus.
Family demerger
Capital treatment on buy back and demerger.
Our client is a trading company operating from two separate retail outlets. Mum and dad, who are both in their 70s, have decided they can no longer run the company and wish to hand it over to son and daughter who already work in the business.
The departure of mum and dad would be the subject of a buy-back and we are comfortable that, at this stage, capital treatment would be available.
However, the son and daughter have confessed to their parents that they cannot run the business together because of their clash of personalities and would prefer to each take a separate shop. This would mean a demerger, after the buy-back.
Our question is whether the ‘for the benefit of the trade’ condition, which is necessary for the buy-back to obtain capital treatment, is satisfied if a demerger of that company is considered shortly afterwards? We have approached HMRC for guidance on this point before formal application but the department has declined to comment.
Taxation readers’ opinions would be appreciated.
Query 19,676 – Glitters.
Capital allowances
CAA 2001, s 198 election in respect to tenant’s fixtures.
My client is the owner of trading premises which he has owned in his personal capacity since 1994. The only tenant is his wholly-owned trading company, Tradeco, which pays a rent to my client for the use of the premises and it has an exclusive right of occupation of the premises under a licence.
Over the years, Tradeco has incurred the expense of buying and installing fixtures into the property for the purpose of its own specific trade.
The situation now is that my client has received a good offer for the trading premises and he is minded to sell them and then acquire new premises which he will continue to own in his personal name and then let to Tradeco.
My question relates to the fixtures installed in the building which will now pass over to the new owner of the building. The person with the interest in the land having the fixtures for the purpose of the qualifying activity was Tradeco. The landlord has not spent money on any fixtures for the property, yet he is obtaining the sale proceeds. I am unclear as to the CAA 2001, s 198 election position with regards to the fixtures where the interest in the land of Tradeco has now ended.
CAA 2001, s 196, states that the disposal value to be brought into account in relation to a fixture depends on the nature of the disposal event and specifically under event number 4, this includes ‘cessation of ownership of the fixture under s 188 because of the expiry of the qualifying interest’. Would this be Tradeco’s licence?
In respect of the disposal value, s 196 continues: ‘If the person receives a capital sum by way of compensation or otherwise by reference to the fixture, the amount of the capital sum. In any other case, nil.’
Here, Tradeco will not receive any capital sum for the fixtures from the either the buyer or my client.
Can Taxation readers shed any light on the applicability or otherwise of the s 198 election to the tenant’s fixtures?
Query 19,677 – Landlubber.
Option to tax
VAT issues with property sale to developer.
I own the freehold of a three-storey building in Manchester – all three floors are currently occupied by commercial tenants paying a market rent and I have opted to tax the building.
The tenants on the two upper floors will depart very soon due to Covid-19 and my plan is then to sell the freehold of the building to a developer, who should be able to obtain planning permission to convert the upper floors into dwellings.
However, I wish to retain my interest in the ground floor, so that I can continue to earn rent from these tenants, so I would ask for a long lease to be granted to me by the developer for this floor.
I am unsure about the VAT outcome of my plans. For example, do I charge VAT on the full sale to the developer or is this not necessary if the developer opts to tax his interest in the building as well? I have no issues with the capital goods scheme and my option to tax election was made eight years ago.
I look forward to Taxation readers’ replies and hope they can shed some light on this situation.
Query 19,678 – Speculator.
