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New Queries: 7 October 2021

05 October 2021
Issue: 4811 / Categories: Forum & Feedback

Second home

Tax on profits from married couple’s second property.

A married couple living together intend to purchase a property in addition to their main residence which may be let after refurbishment or then sold.

The husband is a 40% taxpayer and the wife is a 20% taxpayer and they want to ensure that the profit on sale is divided between them in the most beneficial way, whether it is a trading profit or a capital gain.

They will be providing the funds equally from their own resources and will enter into a joint mortgage. Presumably, they will own the property as joint tenants. For capital gains tax purposes the gain would be divided equally between them but they want any income from letting and any trading profit to be allocated 20% to the husband and 80% to the wife. For this purpose, an election using form 17 should be made and the procedure seems to be:

  • sever the joint tenancy and enter into a deed of trust defining revised beneficial interests in the property;
  • submit a completed form 17 with copy of the deed of trust to HMRC within 60 days of signature.

Would this achieve the desired result or are there any additional or alternative steps that can be taken? If the husband transferred a proportion of his interest in the property to his wife under the no gain/no loss provisions for capital gains tax would that be effective for income tax purposes? Would this transfer be made under the deed of trust?

I understand that the transfer of interest in the property would result in a liability to SDLT on the proportion of mortgage transferred. Could it cause problems with the mortgagor?

Readers’ advice would be appreciated.

Query 19,831 – Transferor.

Estate distribution

Disclosing the dividends on estate tax return.

My client is the executor and principal residuary beneficiary of a substantial UK estate. During the tax year 2020/21 the estate received dividends from US quoted securities totalling £100,000. These suffered 30% US withholding tax.

I assume that the executors are free to make a claim to the IRS in full under the UK/US double tax treaty to repay the difference between the 30% tax paid and the 15% maximum withholding tax charge stated in Article 10 of the treaty.

When disclosing the dividends in the 2020/21 estate tax return I have limited the tax credit to the dividend basic rate of 7.5% as this is the maximum rate of tax payable by the estate.

The residuary estate will be distributed in full in 2021/22 and my question relates to the entries to be made on the R185. First, should the entries be made in either box 18 or box 21 of the form? Second, I assume that the net income figure in this example is £85,000, but what is the associated credit? Is it £15,000 being the tax actually borne by the estate or is it £6,892 being the ‘normal’ basic tax credit equivalent of a net dividend £85,000?

I look forward to receiving some assistance from readers.

Query 19,832 – Adviser.

Currency question 

Will capital gains tax apply to stamp and coin collections?

My client’s elderly parents recently decided to downsize and move to a smaller property.

She has been helping them declutter and found some stamp and coin collections that her father had amassed as a young man. Initial enquiries suggest these could be very valuable.  

Most of the coins are British, but are pre-decimalisation with some are several hundred years old. There are also some foreign coins. 

Can readers advise on, presumably, the capital gains tax implications of a sale. Is this currency taxable and what about stamps?

I’m sure the money would be welcomed by the parents, but I was wondering whether I should suggest that the parents leave the collections to the children and grandchildren, bearing in mind the uplift in base cost on death.

Query 19,833 – Stanley.

TOGC option

Property purchase as a transfer of a going concern.

My client trades as a restaurant and has been given the chance to buy the freehold of the property which they currently rent from a third-party landlord.

The landlord has opted to tax the building so intends to charge 20% VAT on the sale, he also charges VAT on the rent. Although my client can obviously claim input tax, the VAT payment will create a cash flow challenge and also an extra SDLT cost.

A suggestion has been made that my client could form a separate company to own the property asset, register for VAT and make an option to tax election and charge rent to the trading business. The sale would then be exempt from VAT as a TOGC (transfer of a going concern).

Do readers agree that this is an option? Are there are any hidden pitfalls?

Query 19,834 – Turkish Delight.

Issue: 4811 / Categories: Forum & Feedback
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