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Capital gains tax
Tax treatment on compensation payment for loss of light.
My clients personally own some business premises which are used in their partnership trading business. The property was acquired more than 20 years ago for about £200,000 and is now worth somewhere between £1m and £1.5m.
A developer has built a property alongside my clients’ premises and as a result there is a loss of daylight. My clients have engaged a professional who is successfully negotiating a loss of light claim. It is likely that the final settlement will be more than £150,000.
I have assumed that this compensation payment will fall to be assessed under the head of ‘capital sums derived from assets’ and as such will be wholly chargeable to capital gains tax.
Not being familiar with this area of the capital gains tax code I would be grateful for advice when it comes to reporting the gain and whether there is any possibility of adjusting the acquisition value of the property rather than treating the payment as a disposal.
If there is any mileage in adjusting the acquisition value would this interfere with a rollover claim in the event of my clients selling the business premises and investing in new business property?
Readers’ thoughts would be appreciated.
Query 19,879 – Noble.
Professional fees
Legal and professional fees on sale of shares.
Our client has sold their shares in a trading company to an unconnected third party. There is a clause in the sale agreement which provides for any legal and professional fees (up to a limit) to be invoiced to the shareholders personally but paid by the company.
The company will pay the fees directly to the advisers and we are aware that there will be a benefit in kind to be reported on form P11D and class 1 NIC to be paid through the payroll on the payment of these pecuniary liabilities.
For capital gains tax purposes, these fees do not appear to be allowable as incidental costs in calculating the gain arising on the disposal of their shares because TCGA 1992, s 38(2) states the expenditure must be ‘incurred by him …’ (unlike s 38(1)(b) which allows expenditure incurred ‘… on his behalf …’). Alternatively, can it be argued that the shareholder has ‘incurred’ the cost because it is being taxed on him as a benefit in kind?
I look forward to receiving clarification from readers.
Query 19,880 – MM.
Gift to charity
Inheritance tax savings on giving to charity.
My client has asked me about the inheritance tax saving from executing a deed of variation in favour of a charity.
Because the residue of the estate is split equally between himself and his two siblings, he wonders whether it is possible for the inheritance tax saving (at 40%) to be allocated entirely to him – so, for example, if the charity received £10,000, it would ‘cost’ him £6,000 as a reduction in his net share of the estate. I expect this is possible but would appreciate any advice readers may have about possible complications.
I recall that it may be possible for him also to claim gift aid for income tax on the £10,000. Can readers confirm whether this is still the case, and if there are any conditions that have to be met to enjoy this double helping of tax relief?
Any advice from readers would be gratefully received.
Query 19,881 – Optimist.
Input tax claim
HMRC refusal to allow input tax on property purchase.
I act for a printing business which purchased the freehold of new office premises for £400,000 plus VAT in April 2021.
At the time of the purchase, the seller’s solicitor gave my client’s solicitor a copy of the VAT 1614A option to tax form supposedly submitted to HMRC the day before the sale, with a covering letter that was posted to the department’s unit in Glasgow. This was treated as proof that the election had been made and therefore £80,000 of VAT was correctly charged on the sale.
However, HMRC has since rejected my client’s clam for input tax on his June 2021 VAT return, on the basis that the option to tax election was never received.
It has instructed my client to seek a VAT credit from the seller. This appears unfair and a big problem because the selling company is now in liquidation. So, even with a VAT credit from the seller, my client is unlikely to receive an £80,000 refund.
Do readers have any thoughts on this horror situation? Surely the easy solution would be for the seller to submit another election, backdated to the day before the sale took place, although this would presumably need to be done by the liquidators? Would this solve my client’s input tax problem?
Query 19,882 – Printer Pete.
