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Trust disposal
Reporting a property disposal made by a trust.
I act for a trustee who owns a property which is occupied by a beneficiary under the terms of the trust. I am comfortable that all of the conditions for only or main residence relief are met. However I have not encountered this situation in practice before and I am not sure of the disclosure process.
In the normal course of events, when a disposal by an individual qualifies for relief in full, there is nothing to enter on the individual’s return, but I am aware that when the disposal is by trustees they need to make claim for only or main residence relief. How do readers deal with this in practice?
If I prepare an only or main residence election which is signed by the trustees and the relevant beneficiary and then submit this to HMRC will that meet the trustees’ legal obligations? Or do the trustees need to submit a return for the year of disposal (assuming that otherwise there is no requirement for them to do so) showing a calculation of the gain, which is then reduced to nil because of the availability of relief?
I am assuming that there is no requirement to submit a return under the new 30-day rule, because there is no tax payable.
Any guidance that readers can give me here would be most welcome.
Query 19,811 – Cautious.
Loan charge woes
Loan charge dilemma on new owners seeking repayment.
In January 2020 Taxation was kind enough to publish my question (tinyurl.com/3xra3kh3) about reports which were circulating about trustees selling off their loan books and the new owners seeking repayment. Some useful replies were published.
I have seen further demands since that time and I note that HMRC published some guidance on the topic recently though frankly this does really help.
I have the following questions.
- Has anybody successfully managed to challenge a demand on the basis that there was never a loan in the first place or that the trustees were acting outside their powers in selling the loan book?
- Are there any other routes open to clients who are faced with the nightmare of having paid the tax on the loan charge and yet are faced with a demand for repayment of the loan?
I would be very interested in reading about other readers’ experiences here.
Query 19,812 – Worried.
Making tax digital delay
Using MTD exemption for income for partnerships.
Like many advisers I am concerned that some of my smaller clients will not be ready for making tax digital (MTD) and I would like to defer their entry into the system for as long as possible.
I see that there is an exemption from MTD for income for partnerships with a corporate member. Could some of my sole trader clients take advantage of this by forming a company with themselves as sole shareholder and then carry on the business as a partnership between themselves as a new company?
A very small profit share could if necessary be allocated to the company – although under the hybrid rules this would probably be taxed on the individual.
Is this idea worth pursuing, or is it a case of solving one problem only to create many more in its place?
What do readers’ think?
Query 19,813 – Adviser.
Reverse charge dilemma
Dealing with reverse charge on subcontractor invoice.
I act for a building company that is working as the main contractor in converting an office block into apartments.
My client is using a lot of subcontractors to help with the project, and the supplies by the subcontractors are subject to the new reverse charge legislation that took effect on 1 March 2021.
One of the subcontractors is showing the reverse charge as due at 20% VAT on their sales invoices rather than the 5% rate that applies to residential conversions.
The subcontractor is refusing to correct the invoices because they say it is not relevant to their own VAT returns. So, for example, if an invoice is for £10,000 (no VAT), they have stated on the sales invoice that my client must do a reverse charge entry for £2,000.
My initial instruction to my client was that he should just follow the instructions on the supplier’s invoice as the VAT cancels itself out anyway, ie account for £2,000 in box 1 and claim the same amount of input tax in box 4.
But I wonder if HMRC might seek to disallow 15% of the input tax entry in box 4, ie to apply the correct rate of VAT to the work in question.
This would leave my client out of pocket because HMRC would presumably still expect to receive 20% VAT in box 1? This does not sound fair.
Readers’ thoughts would be appreciated.
Query 19,814 – Reverse Gear.
