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New queries: 2 March 2023

28 February 2023
Issue: 4878 / Categories: Forum & Feedback , Capital Gains , Self assessment , VAT

Does my client need to report a property sale with no gain?

One of my clients has approached me about his mother’s tax affairs. She and her husband purchased their private residence 35 years ago and his mother continued to live in the house after the death of her husband ten years ago. She had to go into a nursing home about two-and-a-half years ago. There was some hope that she might be able to return to her home to live with a care package but this proved impossible and she will never return to live in her house.

The property is now up for sale but it is proving difficult to sell and my client is worried that the three-year limit may be reached before the property is sold. Given the length of ownership the proportion of the gain which would be taxable would be very small and it is unlikely that any capital gains tax would become payable because of the annual exemption.

I am confused over the reporting requirements. If no tax is payable then I don’t think that a residential property return is required but will a self-assessment return be required (the client’s mother is not within SA) given that ultimately the sale proceeds will be in excess of £50,000? The client is worried that if no return is made, HMRC will be aware of the transaction through land registry returns and raise enquiries. He is anxious to avoid this. 

What is the best solution?

Query 20,099 – Maple.

Can capital losses be offset?

I act for a husband-and-wife partnership and they purchased a house in Scotland in 2020 to rent out as a holiday cottage. They made tax losses for the tax years 2021 and 2022 with the rental activity but managed to sell it in February 2023, producing a net capital gain of £52,000, ie £26,000 each. There was a further trading loss of £6,000 from 6 April 2022 to 10 February 2023 (when they sold it), adding to losses carried forward of £15,000 from the earlier tax years.

Is there any scope for the £21,000 losses to be offset against either the capital gain or – more likely – their other sources of income, which are mainly from state and private pensions. I know that the rules for holiday lettings are different from buy-to-let activities. The husband also earns a reasonable profit from renting out a separate holiday home in his own name, if this is relevant.

What do readers think?

Query 20,100 – Clyde.

What type of income is bitcoin mining?

Our UK resident and domiciled client bought 26 Bitcoin mining rigs in November 2021 for £193,000 with a view to profit. Her daily income from mining Bitcoin totalled £45,000 net of costs in 2021-22, and similar income in 2022-23 to date reflecting the fall in value of Bitcoin.

The mining rigs were bought from a UK company but are hosted and located in Iceland by a related company. Our client is not connected to either company. She has a service agreement with the EEA hosting company that deducts 25% of the gross mined Bitcoin for energy usage plus their 10% service fee for setup and maintenance of the miners. The mined Bitcoin units are credited to her wallet daily, net of these charges. She spends no time on the mining and has no knowledge in IT or crypto. She was introduced to the hardware supplier, paid for the miners and signed the service agreement.

Does her mining activity amount to trading income from self-employment or is it miscellaneous income? Trading would be beneficial to claim capital allowances. Each rig has a useful life of seven to ten years. HMRC’s Cryptoassets Manual at CRYPTO40200 would indicate that it ‘probably constitute[s] trading activity’, if 26 mining rigs are considered to be a bank of dedicated computers purchased and costs are significant. She has no direct organisation for her mining operation (entirely outsourced to EEA-Co). There is activity (as the mining rigs do all the work to generate the income); risk (useful life of miners and changing price of Bitcoin); and commerciality (returns so far). There are no customers. Our client does not have any earned income and her living expenses are part financed by selling Bitcoin and family support.

The focus of my query is the income categorisation, not capital gains. Also, if her total gross income (with energy and hosting service fees added back) exceeds the UK VAT registration threshold, should she be VAT registered for this income generated in the EEA?

Query 20,101 – Mined-boggled.

VAT on best salesperson prize?

One of my clients trades as an estate agent and makes a monthly award to the sales negotiator who has achieved the most sales. The prize is a luxury spa weekend for two, including accommodation and meals at the venue and a range of spa treatments. The venue invoices my client and my client claims input tax but then accounts for output tax on the same VAT return as the treat is enjoyed privately by the employee.

I understand that the output tax payment might not be correct due to a recent CJEU case which confirmed that awards like this will qualify as an expense incurred for the purpose of the business. Does it make a difference that the award includes a guest/partner that is not an employee? And why is a CJEU decision relevant when the UK has left the EU?

Finally, can my client treat the past output tax payments as a VAT error of principle and make a claim for a refund going back four years?

Query 20,102 – Spartan.

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