Typical examples of questions and answers from recent issues
Q – I read with interest your article ‘How to Reduce your Taxable Income’. The message I got for a UK-domiciled resident was that if you legitimately invest offshore into a commercial enterprise then UK tax will not be charged; this is contradictory to other opinions I have received.
A couple of years ago, I placed UK taxed paid funds into two USA debt Purchase/Collection businesses not personally associated to me; they have used the funds to purchase US consumer debt (in their name) and then collect on those debts, from the collected proceeds they retain their costs (a previously agreed % amount); the balance proceeds are held on account and are reinvested in more purchases as and when suitable portfolios are available. I have not repatriated any of the profits and do not intend to until at least after retirement.
Your article has led me to believe that UK tax may not be payable: can this be right or am I deluding myself?
D. H. – via email
A – It depends on the precise nature of your investment and the business in which you have invested. If the US business is a company or other entity that the UK Revenue considers to be opaque and you have no involvement in its management, then yes we agree: you will not be liable to UK tax unless and until profits are paid out to you.
If you have invested in a transparent business, for example a partnership, then you are liable to UK tax on the profits as they arise regardless of the fact that they are not paid out to you.
Q – In 2002, I made a small speculative investment in a mining exploration company, incorporated in Canada but operating in the USA. My shares were registered in the UK, quoted on OFEX, but there was also a Canadian Register quoted on Toronto Venture Exchange TSX-V, i.e. there was dual registration and markets. When OFEX changed to Plus, with increased fees, the Plus quotation was cancelled, after due notice, leaving the shares now quoted only on TSX-V, although separate UK and Canadian Registers remain. I purchased these shares as a ‘business asset’ to obtain CGT/IHT reliefs. The company is not a holding company – it actually drills holes! To sell the shares, I will have to transfer them to the Canadian Register, FOC, but they are now worth 20 times what I paid for them – and rising. I wish to keep them. The question is, do the reliefs continue given the change of market to TSX-V? If the answer is ‘no’, is there any time limit on the disposal of the shares to secure at least the CGT relief? Does the UK Registration help, or should I re-register in Canada?
G. C. – via email
A – The shares are owned by you and this hasn’t changed regardless of the market on which they are registered. Provided the Canadian TSX-V market is similar to OFEX, that is it is not a full stock exchange and the shares registered on it are not considered to be quoted, the beneficial CGT and IHT reliefs will continue. We are not familiar with TSX-V but basically as long as the shares do not become fully quoted the reliefs will remain.
Q – In the past I set up a discretionary trust. A property that my son and I have been using as our principal residence belongs to the trust. I would like to know what tax benefits we could enjoy if we rent the flat out.
A. V. P. – via email
A – There are no tax benefits from letting the property. The trust will pay 40% tax on the rental income and will lose its entitlement to CGT exemption on the property with effect from the date you cease to occupy it. If your son has no other income, an advantage of letting the property is that the trust will have income which it can pay on to your son. He would then be able to claim a tax repayment of some or all of the 40% tax paid by the trust. So it is a way of giving him income and using his personal allowances and/or basic-rate band.
Q – X dies leaving his estate to his two sons A and B. A and B both have their own principal private residences (PPR). A valuation for the house is agreed for probate purposes with the Valuation Office at £350,000 in the state at the time of death. One year later, A and B decide to sell and will obtain a net amount of £400,000. Can B live in the property for a few weeks, elect for it to be his (PPR) and the gain is then tax-free in total? Or will the gain be split and if B makes the election his share of the gain is tax-free but A’s gain is a taxable capital gain?
T. C. – via email
A – B can live in the house and elect for it to be his PPR. But doing so for only a few weeks, particularly when an offer has already been accepted for the onward sale of the property, is unlikely to be accepted and the election is likely to be challenged. For the election to be valid for such a short period of time, B would need to prove that he originally intended the house to be his long-term residence but then, owing to unforeseen circumstances, his plans changed. Such a claim would not be evidenced by the facts if there were already plans to sell the house. Even if B could make a valid PPR election, it would only cover that portion of the house owned by him; so A’s share would still be liable to full CGT.
 |
|
|
