CGT horror, VAT on overseas expenses, Contracts for difference

To coincide with Halloween, when frightening and spooky things abound, we have three tales of tax horror to shock you. First: bad advice given by a solicitor on the gift of a house. Second: the lack of advice given by a large firm of accountants on reclaiming VAT on overseas expenses. Finally a warning about letters from HMRC concerning schemes involving contracts for difference. There is something to learn from each of these situations.

This is an
extract from our topical tax tips newsletter dated 29 October 2015
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

CGT horror 
Imagine this: your client tells you he has given his daughter a let property to reduce the value of his estate for IHT purposes, and to provide his daughter with a source of income. The solicitor who handled the conveyance said as no money changed hands there was no capital gains tax to pay. 
  
The solicitor’s advice is wrong on two fundamental points. The gift between the father and daughter is taxable, as it doesn’t fall into one of specific exemptions provided by the legislation – such as a transfer between spouses/civil partners (TCGA 1992, s 58). 
  
Where a transaction – including a gift – occurs between connected parties, the transaction is deemed to occur at the open market value of the asset transferred (TCGA 1992, s 17). The father and daughter are connected persons as they are relatives (TCGA 1992, s 286(2)). It makes no difference that the daughter is an adult, she remains connected to her father for the whole of her life. The fact that no money changed hands doesn’t change the deemed consideration for the transaction. 
  
If the property has increased in value while your client has owned it there may well be CGT to pay. The taxable gain is calculated as if he had sold the property to his daughter at its market value. 
  
There are two possible ways to mitigate this gain:…..

The
full newsletter contained the remainder of this piece plus links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.