Channel Islands loan conundrum.
Can readers comment on where the situs of a loan is for the purpose of the UK inheritance tax ten-year charges? The loan was made by a Jersey excluded property trust (non-domiciliary, non-UK resident settlor) to an unconnected Gibraltar investment company, which is non-UK incorporated but is UK tax-resident by virtue of its shareholders and directors being resident in the UK.
The Gibraltar company has used the funds to acquire UK hotels for investment purposes and pays interest with 20% withholding tax deductions. Is it correct that the loan is non-UK sited as it can only be legally enforced in the country of incorporation, not residence, and therefore the Jersey trust has no ten-year charge exposure?
Query 20,591– Footloose.
A baker’s dozen.
A sole trader client has approached us to help him with an embarrassing problem. It transpires that for the past 13 years he has been working for a large agricultural company and has never invoiced them.
The end client has now insisted that he sort out his paperwork and provided him with their records of his work for them since 2013. Our initial calculations show the total to be invoiced over 12 years will be around £170,000 – increasing slowly from £8,000 in the early years to around £25,000 in recent times.
Our client has typically had sales in the £40,000-£50,000 range and is not VAT-registered. His client is VAT-registered and is apparently happy to pay what is owed once it is invoiced to them.
We have three options:
- File a digital disclosure from 2013 to 2023 and amend the 2023-24 and 2024-25 years – all ex-VAT but with penalties and interest.
- Amend the 2023-24 and 2024-25 years and invoice the balance in 2025-26 (requiring VAT registration).
- Register for VAT, invoice the whole amount and report it in the 2025-26 year on the basis of cash accounting.
We would appreciate views on which option is ‘the right thing to do’. Is it more correct to use digital disclosure to amend ten years – even though no income was received at that time, or would HMRC’s view be that the invoices generated and paid in 2025 should be treated as current income?
Query 20,592– Whatever Next.
Can extra building work on new house be zero rated?
One of my clients is constructing a new house in the garden of her existing home; the new house meets the conditions of a dwelling.
The new house is not yet completed – with ‘second fix’ plasterboard walls, bathroom, kitchen, flooring etc still to be done – and is not yet habitable. After planning permission was granted, and after work on the construction had started, she subsequently applied for the right to construct a single story extension to the rear of the house, which was approved by the authorities. Footings for the extension were put in as the shell for the rest of the building went up.
We now wish to complete the extension before the second fix is carried out. My question is whether the completion of the extension work by the builders will be zero rated as the extension is technically still part of the new build process? Or does VAT apply on the labour and materials because it is an extension to the original design?
Readers’ thoughts would be appreciated.
Query 20,593– Eborall.
Can BPR be claimed on gift of a business to adult children?
I have a client who is considering gifting his partnership share of his business and shop from which the business is conducted to his son and daughter. He has asked for advice on what the tax implications are.
He is 75 and has traded for past 20 to 30 years, initially as sole trader before admitting his son as a partner some years ago.
The shop, though recorded in the accounts at a book value of £92,500, is in his name and he does not charge the business rent.
There is no mortgage and I have advised there should be no stamp duty due on the gift of the business and shop. I also have assumed there should be no stamp duty on the creation of two 125-year leases, while retaining freehold as he uses the upper part of the building as his residence
However, I assume capital gains tax will be due on the market value of his share of the business and the market value of the shop, less its cost, less entrepreneurs relief.
I estimate the shop to be worth about £300,000 and his share of the partnership, calculated on a multiple of net profit, to be worth about £50,000.
For inheritance tax purposes, I don’t know if I can claim business property relief (BPR) in valuing the gift. I have read you lose BPR if you retire but it may be claimable on a gift? From little research I have done, I am given to understand the gift would be a potentially exempt transfer as opposed to a chargeable lifetime transfer, as the transfer is to his son and daughter.
I would be grateful for readers’ views on the taxes likely applicable in the above scenario and the value of the gift for IHT purposes. Is BPR claimable in valuing and recording the gift? What actions should be taken, if any, to ensure BPR is claimable?
Query 20,594– Donor.
