Google advertising invoices: will Irish VAT be charged?
One of my clients trades as an insurance broker with offices in six different towns. The company is not registered for VAT because all sales are exempt in accordance with VATA 1994, Sch 9 group 2. I discuss VAT with the director each year and I thought the company might need to register six years ago because the directors were thinking about opening staff canteens in each office. This would have generated sales exceeding the registration threshold, which was £85,000 at the time. However, that idea was abandoned very quickly.
My latest concern is that the director recently asked why Google does not charge VAT on its advertising invoices and I said it was because the invoices are issued from Ireland, so they are outside the scope of Irish VAT due to the general business-to-business (B2B) rule for services. However, my client is concerned that Google might retrospectively charge Irish VAT because there is no UK VAT number it can show on its sales invoices. Is this a genuine risk? The annual spend with Google is £200,000, which has been the budget for the past six years.
It seems strange that my client is not paying VAT on the Google invoices but would be charged VAT if Google issued invoices from its UK offices. Am I missing a trick somewhere?
Query 20,687 – Confused.
Saving SDLT on second home?
My clients are a husband and wife who live in a house that the husband had purchased in his own name before he met and married his wife. After marriage, with the permission of the mortgagor, the house was put into the joint names of himself and his wife. The mortgage remained in the sole name of the husband.
The couple would now like to buy a second property for use as a holiday home by themselves and their family. This second home may in due course become their main home when they retire. I understand that a higher rate of stamp duty land tax (SDLT) is payable on the purchase of a second property, although this is refundable if their previous home is sold within a specific time ‘window’.
If I am correct about a potential higher liability, can Taxation readers advise on whether there is a legal way to avoid this? I did wonder whether their current house might be conveyed back into the sole name of the husband, with the wife buying the holiday home in her own name. Would this result in a lower SDLT liability?
Query 20,688 – Holidaymaker.
Garden retreat
One of my clients is a well-known and highly successful author and illustrator. Fifteen or so years ago he had a purpose-built ‘work cabin’ installed in his large garden. This gives him plenty of space to write and paint and it also has a sitting room, bathroom and small kitchen. There is no sleeping accommodation. As he has got older he has used the cabin less and less, and a couple of years ago, after a fall on the icy path to the cabin, he decided not to use it anymore. Since then, he has allowed it to be used by the local community for things like painting classes and book group meetings. He also makes it available to other writers. He doesn’t charge anything for this.
He and his partner are now considering downsizing and he has asked me whether the existence of this cabin will make any difference to the principal private residence (PPR) exemption (it is likely that the cabin will be sold with the house). I don’t think that it will, but this is an unusual situation and I would be grateful for the views of readers.
Query 20,689 – Dickens.
How to minimise potential chargeable lifetime transfers
My clients are a husband and wife with a portfolio of investment properties owned jointly by them, which is registered with HMRC as a partnership. The partnership controls approximately 40 buy-to-let and commercial units. In addition, they are 30% shareholders of a separate incorporated company that also owns buy-to-let properties, with the other 70% owned by their adult children.
Taking into account the personally held buy-to-lets that they have owned for many years and their 30% stake in the company, their estate is worth upwards of £8m. They are both now over state retirement age but continue to work full time. The concern here is inheritance tax (IHT).
One of the planning strategies we are considering here is taking out a joint life, whole of life, second death life assurance policy with the proceeds written on discretionary trust, enabling their beneficiaries, basically their adult children and some grandchildren, to cover part of the IHT costs after the death of the last surviving party to the marriage. Needless to say, the cost of the premiums is substantial, over £30,000 a year.
They are currently contemplating incorporating the partnership buy-to-let business into a limited company, solely owned by themselves. However, I have pointed out that if their intention is to do this and to simply draw out by way of dividend the bare minimum that they require to live on, the funding of the life assurance premiums themselves would become chargeable lifetime transfers (CLTs) if the policy is held on discretionary trusts, in view of the fact that they could not be regarded as gifts out of income as there would be no surplus income out of which to cover the premiums if dividends are maintained at a minimal level.
If indeed this strategy was pursued as incorporating the partnership business and dividends held at a minimal level, does this mean that just the life assurance premiums would be CLTs, or would the entire proceeds of the policy, in the event of second death, be in some way tainted as a failed CLT?
Query 20,690 – Partridge.
