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New queries: 10 February 2022

07 February 2022
Issue: 4827 / Categories: Forum & Feedback

Pension dilemma

Recycling state pension into the private pension.

My client is a higher-rate taxpayer aged 65 who is in full time employment and is likely to remain so for a few more years. He will be entitled to his state pension when he reaches the age of 66 later this year.

One option he is considering is deferral of his state pension until he either ceases employment or reduces his working hours down to a level at which he pays only basic rate tax. He has asked me whether it would be better for him to draw the pension when he reaches 66 but then contribute the full amount of the state pension into his private pension (subject to the annual allowance and total pension fund limit).

He would pay higher rate tax on the pension but receive higher rate relief on the contributions to the private pension and so the two amounts would cancel each other out.

From an investment point of view this comes down to whether or not there would be a better return on the additional private contributions than he would get from the higher amount of state pension which he will receive when he ceases the deferral.

The question for me is whether there are any restrictions preventing him recycling his state pension into the private pension. I know that there can be restrictions where tax free lump sums from pensions are recycled but are there equivalent rules for the state pension?

I look forward to readers’ assistance.

Query 19,895 – Cyclist.

Offshore trust

Remittance basis on offshore account of UK resident.

I act for an offshore trust where the trustees are considering bringing the trust onshore. The trust is likely to incur capital gains under TCGA 1992, s 1(3) and have available relevant income.

If the trust becomes UK resident and subsequently makes an offshore capital payment to the offshore account of a beneficiary who is a UK resident remittance basis user, can the beneficiary claim remittance basis treatment in respect of the payment?

I look forward to receiving readers’ replies.

Query 19,896 – Adviser.

Overseas property

Capital gains tax on overseas property proceeds.

My clients are Australian citizens who have been UK resident since October 2013. She was born in Australia and he was born in the UK and they intend to retire overseas within ten years. She has never had UK sourced income or gains.

In May 2017 she sold an Australian residence (property A) with net proceeds equivalent to about £1m. The monies were kept offshore until May 2020, at which time they were remitted. In 2018-19 she sold another offshore property in Australia (property B), this time at a substantial capital loss.

Property A was originally purchased by the husband in April 2002 for around £350,000. The couple, who were married at the time, lived in the property as their only main residence. In June 2003 the couple left Australia and he rented the property out from July 2003.

In December 2009 the property was transferred from the husband to the wife. This triggered a capital gain in Australia on the husband on the market value of about £600,000. As the husband had losses forward no tax was payable. When the wife sold the property in May 2017, she too had a mixture of trading and capital losses meaning no taxes were payable at the time.

Was the transfer in December 2009 subject to the no gain no loss rules, or can my client argue a tax event occurred when the Australian authorities required a capital gains assessment? And given she used trading and capital losses is the Australian tax deemed paid at the applicable rate and a tax credit is available? Looking at the Australian tax return, income and gains are assessed separately, but then taxed on a net basis.

If my client is not entitled to any tax credit, and the no gain no loss rule applies so the acquisition price is £340,000, can she claim only or main residence relief for the time she lived there and the last nine months deemed occupied as well?

Readers’ views would be appreciated.

Query 19,897 – Signed Challenged.

Wine VAT conundrum

VAT issue on buying and selling wine in Switzerland.

My client who buys and sells wine, has recently purchased some wine from a supplier in Switzerland who has charged 7.7% VAT. But surely there should be no VAT charged as my client is a UK business?

She now intends to sell on the wine to a wealthy man in Zurich who will store it in the cellar at his mansion. The value of the shipment will be about £10,000.

Presumably she can make a claim to the Swiss tax authorities to recover this VAT, but is this conditional on her charging UK VAT on the sale?

It all seems very confusing. Are readers able to provide some assistance?

Query 19,898 – Claret.

Issue: 4827 / Categories: Forum & Feedback
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