David Whiscombe

Securities and taper relief

Readers will recall the concern that the term 'securities' in the Taxation of Chargeable Gains Tax Act 1992 was not quite as wide in its scope as had been thought, and that the Finance Act 2002 has remedied this by providing that section 251(6) (which deems certain debentures to be securities for some capital gains tax purposes) also applies for taper relief purposes.

DAVID WHISCOMBE of Berg Kaprow Lewis describes a way of ensuring that venture capital trust relief has an income tax effect.

MR BAGGINS MADE a capital gain on United Kingdom property of £250,000 on 1 December 1999. His adviser discussed a range of tax shelters with him and on 1 May 2000 he invested £100,000 in a venture capital trust in order to shelter the gain. In the year to 5 April 2001, his gross income was £20,000 income from property, but this has been covered by Schedule A losses brought forward from earlier years.

A strange quirk of English common law allows a creditor to accept an asset of any value for a monetary debt. DAVID WHISCOMBE of Berg Kaprow Lewis illustrates how by means of a case study.

EBENEZER SCROOGE LOANED £50,000 to his nephew Fred in 1985 to help Fred establish a new business. The loan initially bore interest at a high (not to say usurious) rate, which was paid by Fred, claimed by him as an expense, and declared on Mr Scrooge's tax return.

Companies now get tax relief for interest on late paid tax. Does this extend to interest on late paid tax due under section 419, Taxes Act 1988 (loans to participators)? Also do they also now get tax relief on interest on late paid pay-as-you-earn and National Insurance contributions?

As to section 419 tax, this is treated for most tax purposes (including the interest charges) as if it were corporation tax. So it is treated as a non-trading debit on a loan relationship (with the result that the company gets tax relief for it).

A partnership may be run alongside a company, sometimes as a means of mitigating National Insurance contributions. The chickens can, however, come home to roost with a vengeance on a sale of the shares in the company. The Revenue will often argue that the existence of the partnership means that the director is not a full-time working director of the company and that therefore retirement relief is not due.

One of the main advantages of options under the enterprise management incentive scheme is that taper relief starts running from the date the option is granted, not the date the option is exercised. It has often been the practice with, for example, shares acquired under an executive share option scheme (what the Revenue now calls a CSOP) to transfer shares to a spouse to use capital gains tax exemptions efficiently. Does this work with shares acquired under an enterprise management scheme option?

One of the main advantages of options under the enterprise management incentive scheme is that taper relief starts running from the date the option is granted, not the date the option is exercised. It has often been the practice with, for example, shares acquired under an executive share option scheme (what the Revenue now calls a CSOP) to transfer shares to a spouse to use capital gains tax exemptions efficiently. Does this work with shares acquired under an enterprise management scheme option?

A decision of a Special Commissioner given in September 2000 concerned the meaning of retirement in relation to a pension scheme. The case was Venables and the Trustees of the Fussell Pension Scheme v Hornby (SpC 265) and it concerned an executive director who retired in 1994 from that position but continued as a non-executive director. The Revenue was seeking to tax the lump sum payment which he received at that stage, basing its contention on the fact that there was no actual retirement in view of the continuing non-executive directorship.

Loose Ends

VAT and conveyancing: when is the tax point?
Under the English system of conveyancing, the deposit is usually paid to the vendor's solicitors as stakeholders at exchange of contracts and released on completion when vacant possession is given against payment of the balance of the purchase price. This gives rise to no problem as far as VAT is concerned, because both payment and the 'making available' of the 'goods' constitute events of charge under, respectively, section 6(4) and 6(2)(b) of the VAT Act 1994.

When shares are transferred from husband to wife, the wife's 'qualifying holding period' is treated as including any time when the husband owned them. (Obviously the same applies on transfers from wife to husband, but this item will be more comprehensible if I avoid terms like 'transferring spouse' and 'transferee spouse'.) But the question whether they are business assets or not is determined entirely by reference to her own circumstances, not by reference to her husband's.