Can loss be claimed via a negligible value claim?
A client of mine was a remittance basis user through to 5 April 2025. They did not make a foreign capital loss election under TCGA 1992, s 16ZA. From 6 April 2025, they will be taxed as a long-term resident (LTR).
They made an investment about 10 years ago in the sum of approximately £700,000 into an overseas company. The company has recently gone into liquidation and I was asked if the resulting loss can be claimed in 2025-26 via a negligible value claim. Although prior to 5 April 2025, the answer would have been that the capital loss was not allowable, it seems that under the new LTR regime it will be allowable. Is this actually true?
Query 20,551 – Dusk.
Mitigating the risk of HMRC challenging a settlement.
A client’s mother (mid-80s) transferred a controlling stake of voting ordinary shares in a business property relief (BPR) qualifying trading company unknowingly to a family member in late October. The transfer was reported to Companies House a month or so later, but she only recently became aware of the transfer and the subsequent loss of control over the company. The family member has admitted to undue influence for the transfer and is now potentially willing to transfer the shares back in her name.
While capital gains tax implications are mitigated through gift relief claims, inheritance tax risks persist if the mother dies within seven years; a clawback of BPR and an IHT liability could arise if the shares are returned. Litigation to nullify the original potentially exempt transfer (PET) is being proposed. My questions are as follows:
- Would a consent order (following court proceedings but settled pre-trial) suffice to nullify the original PET under IHTA 1984, or must the case proceed to full trial to establish undue influence definitively?
- Given HMRC’s use of Connect and public Companies House data, what steps can mitigate the risk of HMRC challenging the settlement?
- Are there precedents where transfers reversed via undue influence claims resulted in successfully preserving BPR? How might HMRC treat the shares’ status if returned pre- or post-litigation, particularly if the mother’s health declines during the seven years?
Query 20,552 – Chuck.
How can we avoid a double IHT charge on client estate?
We are seeking a practical solution to a succession planning issue for our client, Mr P. He’s been a widower for many years, and is now in a long-term relationship with Ms B. They are not married and do not intend to marry, but wish to spend their lives together. Mr P has two adult sons in their 30s, both of whom are married with young children.
Mr P is now looking to purchase a new main residence, which he and Ms B will live in together. He wishes to ensure that, in the event of his death, Ms B has the right to remain in the property for the rest of her life. However, he also wants the property ultimately to pass to his two sons after Ms B’s death.
Our current understanding is that, if Mr P were to achieve this (giving Ms B a right to occupy for life), it would constitute an immediate post-death interest (IPDI). As such, the value of the property would form part of Mr P’s estate for inheritance tax (IHT) purposes on his death, and then again as part of Ms B’s estate upon her death – meaning the property could potentially be subject to IHT twice before reaching the sons.
Given that both Mr P and Ms B have substantial estates and will not qualify for the residence nil rate band, we are looking for views on whether:
- our understanding of the double IHT exposure under the current plan (via an IPDI) is correct; and
- there are any alternative planning options that could preserve Ms B’s right to live in the property for life without triggering a second IHT charge on her death.
Any practical insights, including the use of trusts, lifetime gifts with reservation of benefit planning, or structuring options that avoid double IHT exposure while still achieving Mr P’s wishes, would be most welcome.
Query 20,553 – Life tenant.
Is there VAT on service charge for commercial building?
One of my clients owns a long lease in a commercial building as a partnership – registered for VAT – and is invoiced every three months for a service charge contribution by the freeholder, which does not include VAT. The service charge covers gardening, insurance and general maintenance costs, and the terms of the charge are specified in the lease. My clients rent out the property to a limited company that is jointly owned by the two partners ie, 50% share capital each.
My clients have opted to tax their interest in the building and charge VAT on the rent to the company, which is not a problem because the company is fully taxable ie, there are no anti-avoidance issues for input tax purposes.
My question is simple: should my client also charge VAT on the service charges, which are reinvoiced to the tenants at cost price. If the answer is ‘no’, does this cause a partial exemption problem for the partnership?
Query 20,554 – Docking Doll.
Queries and replies
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