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Sleeping partner
Tax treatment of the property income of joint owners.
I act for a client who is the joint owner with his wife of a house they used to live in and that is now rented out. He is named as the lessor, and the rent is paid into a bank account in his sole name.
The mortgage on the house has always been in their joint names from the time they bought it. They are not separated or in any way estranged.
I have felt inclined to regard the property income as split between the spouses for income tax purposes, but am unsure whether the lack of my client’s wife’s name on the lease would invalidate this.
I would appreciate any light your readers might shed on this matter.
Query 19,315– Radcliffe.
Moving abroad
Company residential property transfer to daughters.
Our company client is winding down its trading activity and over the next year will cease trading. The company owns two residential buy-to-let properties.
There is only one director who is also the sole shareholder. The director is considering moving abroad from April 2019, and before leaving the UK he wishes to transfer ownership of the properties to his two daughters (one property to each of them) and then wind up the company.
One of the daughters is currently employed part-time by the company but this will cease in April 2019. Each of the properties has a market value of about £450,000 and each cost about £300,000.
I would welcome readers’ views on several possible scenarios.
- What is the company’s tax position on the gifts of the properties to the director’s daughters in view of their being connected to the director? And can further guidance be provided on the figures?
- Should consideration be given to the daughters becoming shareholders before the properties are distributed to them individually at the winding up? The director is aware of the capital gains tax exposure on the initial gifts, but is there another way of dealing with this?
- Should we rule out the gift of both properties to the director due to the ‘double tax hit’ on the company and himself?
- Should the company gift the properties to the director before he gifts the properties to his daughters when he becomes non-resident?
All comments would be most welcome from Taxation readers.
Query 19,316– Propissues.
Foreign investment
Tax on rental and sale of French property.
My client is UK domiciled and UK tax resident. He is thinking about acquiring a property in France as an investment to let it out.
His French lawyer has advised him to acquire the property through a ‘société civile immobilière’ (SCI). According to his French lawyer, this sort of set up is common in France because of the French tax inheritance advantages.
According to the French lawyer, the rental income that my client will receive will be taxed in France and subject to income tax. Although the SCI is in itself a ‘company’, the French lawyer confirmed that the SCI is regarded as ‘transparent’ from a French tax perspective and hence the income is taxed on the individual.
My first question is in respect of the UK tax treatment of this rental income. It appears from HMRC’s internal manual that an SCI is regarded as ‘opaque’ from a UK tax perspective and hence the tax treatment may be different. What are the UK tax implications for my client regarding this rental income if the SCI is ‘opaque’?
Also, his French lawyer advised that he would be subject to French capital gains tax when the property is sold. What are the capital gains tax implications in the UK (if any) and will he be able to claim double tax relief under the French/UK double tax treaty if the income is taxed both in France and in the UK?
I look forward readers’ views.
Query 19,317– Colette.
Horse trading
Recovery of input tax on a horse box.
I have a client who sells electrical parts online through his limited company.
The company recently purchased a new horse box for £50,000 plus VAT. This is used by my client’s wife who takes part in about 30 UK horse events throughout the year. The box is heavily covered with details of my client’s website and business activities, and it is painted in company colours.
The events are held throughout the country, so the box is giving business exposure to my clients on a lot of major A roads and motorways. My client claimed 100% input tax on the box as an advertising expense.
The HMRC officer who carried out a recent compliance review said he was going to disallow all input tax on the basis that it is a non-business expense but after a discussion with HMRC’s policy team, he has agreed to allow a 10% claim. I think this is unfair because the cost of the box is only a small percentage of my client’s £500,000 annual marketing budget and 50% would be a fair apportionment.
Do readers think my figure is reasonable?
Query 19,318– Red Rum.
