Potential VAT problem of converting shop into house.
My client owns a public house. By agreement with HMRC we opted to tax a retail shop unit adjoining the public house. The value of the shop unit was approximately £50,000 plus VAT. This happened in September 2019.
We are now seeking to terminate the lease of the tenant in the shop unit who is currently paying rent to our client with VAT, as per the option. We will then seek to convert the shop unit into a residential dwelling or dwellings. Is there any adverse tax consequence in respect of VAT that we should be aware of here?
Readers’ thoughts would be appreciated.
Query 20,567 – Partridge.
Eligibility for substantial shareholding exemption.
A UK-resident holding company (Co A) owns nine subsidiaries, two of which are incorporated and tax-resident overseas. The group is engaged in trading activities and has met the relevant trading conditions for several years.
The shareholders of Co A are planning to sell the group. However, the prospective purchaser is interested in acquiring only the subsidiaries and not the parent company itself. As a result, Co A will sell its shareholdings in each of the nine subsidiaries individually. Following the disposals, Co A will be wound up and its remaining assets distributed to its shareholders.
Would Co A’s disposals of shares in each of the subsidiaries (including the two overseas companies) qualify for the substantial shareholding exemption under current UK tax legislation? Would the overseas subsidiaries be eligible for the substantial shareholding exemption, assuming they meet the trading and shareholding conditions?
Also, would the distributions made to Co A’s shareholders during the members’ voluntary liquidation be treated as capital in nature for UK tax purposes?
We would be grateful for your readers’ views to ensure the transaction is structured efficiently and in compliance with UK tax law.
Query 20,568 – George.
Sale of elderly parent’s property.
One of my clients has raised a question concerning his mother. She went into a nursing home about four years ago but her house has only just sold.
After she moved out it was never rented out but family members occasionally stayed there. She moved into the house in about 1980 with her late husband who died 20 years ago. This was her (and his) only private residence.
As I understand only three years of ownership after she moved out will qualify for private residence relief. That means that something like 1/45th of the gain will be taxable. My client has a rough idea of what the house originally cost but can only estimate the cost of capital improvements made over the 45 years – a conservatory was added and the loft was turned into a spare bedroom.
On a back of the envelope basis 1/45th of the gain comes out as less than the exempt amount. Does this mean that I can advise my client that he does not have to submit a 60-day capital gains tax report or include details of the disposal when he comes complete a tax return on his mother’s behalf?
Query 20,569 – ZA.
Unpaid purchase invoices and credit notes.
I have a client who is registered for VAT and has been issued with an assessment following an HMRC compliance review, which seems to be unfair. It relates to input tax in the end column of my client’s aged creditors report:
- Some purchase invoices are unpaid by more than six months – the officer has issued an assessment to disallow input tax not credited by my client on these invoices. This seems to be correct because my client does not use the cash accounting scheme but can readers confirm? If my client subsequently pays these invoices, should she appeal the assessment or just reclaim input tax on the return that includes the payment date?
- There is a large credit note for one supplier in the end column – a negative entry – which has not been repaid to my client by the supplier because the supplier has cash flow problems. The officer has also issued an assessment because my client has not reduced their input tax figure on any return for this credit note. However, why should my client be even more out of pocket? I would think it is fair that my client reduces her input tax when the supplier repays the credit and not before. My client no longer uses this supplier so there is no chance of offsetting the credit note against other invoices. Is the officer correct?
Query 20,570 – Creditor Cath.
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