Can my client draw his pension’s tax free lump sum?
My client applied for fixed protection in 2016, which means that his lifetime allowance was £1.25m instead of £1,073,100. Now that the lifetime allowance (LTA) charge has been abolished, this seems to be less important, as his pension fund will not be subject to an immediate charge on excess value; and pension contributions seem a good way of avoiding the penal rates of employers’ NIC that now apply, saving corporation tax and deferring an income tax charge until later.
However, I assume that if he pays a pension contribution, his tax-free lump sum will revert to 25% of the lower figure instead of £1.25m? What would happen if he drew the tax-free lump sum and put the rest into a drawdown account – taking no flexible drawdown, so not triggering the money purchase annual allowance – and then made a pension contribution?
Query 20,555 – Minted.
Taxation of long service testimonial awards.
I note that long service testimonial awards for owner managers are tax exempt as long as the conditions contained in ITEPA 2003, s 323 are met. A main condition is that the service must be for at least 20 years and the award must, broadly, not comprise cash or cash equivalents.
I have recently completed 20 years of service for my own owner managed company and am considering taking such an award amounting to £1,000 in the form of a non-cash retailer voucher, equating to the maximum exempt amount of £50 for each year of service. I have been a director throughout the entire 20 years, receiving a personal allowance salary until taking the state pension when the salary ceased.
There seems to be nothing within the legislation explicitly denying tax exemption for owner managers, and neither in HMRC’s Employment Income Manual (EIM01500 et seq). However, I am concerned that HMRC might take the view that an award to an owner manager cannot, by its nature, be a genuine award and would challenge its tax exemption on the assertion that, in reality, the award is being given to me by myself and not by my company (the employer).
I believe that my company should get corporation tax relief on the cost of the award (whether or not it is tax exempt) under CTA 2009, s 1300(4), which, broadly, gives relief for business gifts to employees that would otherwise be prohibited under s 1298 of that act.
I would like to take advantage of the exemption if it is reasonable not to anticipate any challenge from HMRC.
Some of my company’s clients are in a similar position to myself, but I would hesitate to advise them to take such awards if there is any reasonable doubt regarding the tax exemption.
Given that the amount of the exemption is relatively modest and requires twenty years of service, and that a further ten years of service is required for the exemption to apply for any subsequent award to the same employee, perhaps I am being overly cautious with regard to any potential challenge from HMRC. What do readers think?
Query 20,556 – DTL.
Gifting a share of property.
What is the correct process for gifting a share of property? I am not a tax adviser and I would like to ensure that any recommendations I make are in line with current regulations. I have come across differing approaches on this matter, some of which appear to stretch the rules.
I am currently drafting a will for a client, and in this particular case, I believe that transferring up to a 50% share of the family home to his son may be a sensible option. The son, along with his family, resides in the property, which is ultimately intended to pass to him. The son also owns one buy-to-let (BTL) property in his own name.
My client is a widower since 2019 with three adult children. His assets are a family home which is mortgage-free and valued at 800,000. He also has seven BTL properties valued at £2m, all on interest-only mortgages totalling approximately £1m (all insured).
What’s the best approach to gifting a share in the family home in this scenario?
Query 20,557 – Claw.
Is VAT charged on builder services?
One of my property clients owns a plot of land and is building a new commercial building which will be sold at the end of the project – a freehold sale and VAT will be charged. The client is VAT and CIS registered.
My query concerns the reverse charge and whether it applies to building services carried out by the main contractor(s) working for my client. There is no doubt that my client is an ‘end user’ as far as the legislation and HMRC’s technical guidance is concerned because they are not selling construction services, they are supplying an interest in land. However, the contractor(s) have not asked my client to confirm if they are an end user or otherwise and my client has not notified the contractors of their end user status. On this basis, should the contractors issue invoices to my client without VAT and my client accounts for VAT with the reverse charge? Although it makes no difference to the bottom line profit – because any VAT charged will be claimed as input tax by my client – my client would prefer to not be charged VAT for cash flow purposes. Is my understanding correct?
Query 20,558 – Warehouse Will.
Queries and replies
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