Tax treatment of interest paid to members of the club.
We are a private golf club that is limited by guarantee comprising 500+ members (not a community amateur sports club).
From time to time we offer the members the opportunity to subscribe to our loan note scheme. These are detailed loan notes in that they expire on a given date and carry a predetermined interest rate of either 4.75%, or against Bank of England rate linked to inflation. The interest payments are sometimes paid in cash or deducted from the members’ annual subscriptions.
Is the interest where it’s paid as a subscriptions reduction deemed to be unearned income for tax purposes and therefore, should it be declared (disguised payment) and the interest paid in cash also be declared?
Should the club deduct withholding tax or can it just send a list of payments (amount and to whom) to HMRC?
Query 20,527 – Collins.
Is it viable to reduce the value of an estate?
If the value of an estate is, say, £1,3m (which is mainly the value of a house in the south of the country), is it viable to state in a will that everything over £1m (the inheritance tax limit) is given to a hospice charity thus reducing the estate to just £1m and leaving no IHT payable?
Or does the reducing IHT to 36% ‘nonsense’ come into play?
There will be many people across the south in very ordinary family homes, with no excess income over expenditure, etc and who cannot use any of the other so-called ‘exemptions’. I have checked and double checked this fact.
What do Taxation readers think?
Query 20,528 – Southerner.
Do extensive works fall within TCGA 1992, s 38?
Our client acquired a coastal property in England for £950,000 in 2017 with the intention of re-locating from London. They re-mortgaged their London property to assist with the purchase. They sought, and obtained, planning permission for extensive alterations to the coastal property and completed works costing £500,000 in 2019.
For personal reasons, our client retained their London property and decided to run the coastal property as a furnished holiday let and advertised it for one year on a rental portal. The letting business was not profitable, exacerbated by the Covid 19 pandemic. Our client decided to sell the property which was agreed for sale in 2021 at £1.8m – a gain of some £350,000 on the total outlay or almost a 100% gain on the original cost of the property.
Our client self-assessed the capital gain, however, HMRC is disallowing almost all of the £500,000 works that were undertaken on the property which extended the size of the property, upgraded the entire interior of the property and landscaped its extensive garden. HMRC contends that the expenditure incurred is ‘revenue in nature’. HMRC cross-references the requirements of TCGA 1992, s 38(1)(B) and claims they are not met.
We believe the requirements of this section are clearly met as the asset was enhanced (and all the enhancement expenditure was still fully intact at the point of sale – the sums spent were ‘on the asset’ – ie the property). The expenditure was entirely pre-rental and the fact the property was rented out was out of financial necessity.
We would welcome readers’ thoughts on this matter.
Query 20,529 – Roubaix.
Can overseas customer claim VAT on fees to UK solicitor?
One of my clients trades as a solicitor and she has got very confused about the VAT issues for legal services charged to a private individual based in Antigua.
- My client charged 20% UK VAT on the services because the customer is B2C and not B2B, ie the place of supply is UK rather than abroad.
- The customer contacted HMRC’s telephone helpline service and was advised to reclaim this VAT by submitting a special form to HMRC’s overseas repayment department.
- The customer has now asked my client to complete the form on her behalf but she cannot find it on the HMRC website, and neither can I or my colleagues.
My conclusion is that the customer must pay the VAT and cannot reclaim it from HMRC, end of story. But readers might have other ideas?
Query 20,530 – Caribbean Clive.
