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Holiday home
Inheritance tax treatment of a jointly owned holiday home.
My father and mother owned a holiday home in their names as joint tenants. Ten years ago, following the death of my mother, my father put the property into his and my joint names; again, this was as joint tenants. There was a capital gain but, because he had inherited half from my mother about one year previously, it was manageable and I believe that the tax was settled at the time.
In the past decade, we have each used the property for weekends away and holidays, sometimes together and sometimes independently.
I contribute my half share towards all the bills, although because my father is retired he has probably used the property more than I have. However, I expect that this will change as he becomes older and finds the journey more difficult. He paid for a sizeable ground floor extension three years ago which increased the value of the property significantly and I was not able to pay half towards that expense.
On his death, my father’s share will pass to me automatically as surviving joint tenant. But how will this be treated for inheritance tax purposes? The property is now worth about £1.2m.
Query 19,575 – Sea View.
Italian job
Tax status of consultancy work carried out in Italy.
We have a client who intends to carry out consultancy work in Italy. The sales in a 12-month period will exceed the VAT registration threshold.
I am satisfied there is no need to VAT register the business in the UK because all the work will be carried out in Italy.
I would usually register the business as a limited company with the sole director and shareholder receiving salaries and dividends to be taxed in the UK, subject to tax residency status and claiming double taxation relief, if applicable. Corporation tax would also be paid in the UK.
However, the Italian accountant is insisting that the business be set up as a sole trade, otherwise the company will have an establishment in Italy and will be liable to pay company tax there. On the other hand, my understanding was that company tax is paid in the company’s country of establishment and not where the work is carried out.
Is the Italian accountant giving best advice? Taxation readers’ views would be much appreciated.
Query 19,576 – Speculator.
Medical condition
Calculating the number of exception days in the UK.
My client worked outside the UK from 2010 until December 2019 and has been non-UK resident since 2010. She planned to spend 2020 as a Channel Islands (CI) resident (she has a house there), and then return to the UK in April 2021. During 2020, a substantial dividend would be voted to her from a CI company.
However, she returned to the UK in March 2020 to spend a few weeks at her house here and stayed on because she has a medical condition categorising her as vulnerable and is self-isolating. I understand that up to 60 days can count as ‘exceptional’ for UK residency tests.
If the 60-day limit remains and my client’s normal permissible period in the UK is 90 days, she will be deemed UK resident if she is here for more than 150 days. This is possible because she is concerned about her health.
If my client does need to stay in the UK in 2020-21 for health purposes and there is no change to the 60 days maximum so that she becomes UK resident, could she be non-UK resident for 2021-22? The substantial dividend would then be paid in that year – taking into account that the CI tax year is calendar. So, she would be resident outside the EU until 2020, UK resident in 2020-21, CI resident in 2021-22, and UK-resident again from then on. Are there anti-avoidance measures relating to 2021-22 or other complications with taking a substantial dividend in that year while non-UK resident?
My client’s doctor told her to self-isolate on 5 April 2020. If she was able to leave after, say, 120 days in the UK in 2020-21, would this then count as 30 exceptional days and 90 normal days or 60 exceptional days and 60 normal days in the UK? If the former, how quickly does she have to leave after being told that she can because she will have used her 90 days allowance? If the latter, can my client come back to UK for the other 30 days later in the year?
I look forward to replies.
Query 19,577 – Traveller.
Switching payment
VAT on business banking switch scheme payments.
My clients are a husband and wife and they own two commercial and two residential properties.
Several years ago they opted to tax one of the commercial properties. The couple switched their current account from Bank of Scotland to Santander under the business banking switch scheme and received a switching incentive payment in April 2019 and a cashback payment related to turnover in March 2020. Both of these receipts were expected as part of the scheme.
I believe that the incentive payment may be outside the scope of VAT or possibly exempt and that the cashback is probably exempt.
The clients then received a further switching incentive payment in May 2020. The latter was unexpected and apparently resulted from changes that had been made to the scheme. I believe this payment to be outside the scope of VAT, but would appreciate readers’ views on this.
Finally, I suppose that income tax will be payable on the sums received, but I would welcome Taxation readers’ thoughts on this aspect as well.
Query 19,578 – Landlord.
