I’m back… with more case studies

It is a couple of weeks since I last wrote, dear reader, and I apologise for neglecting you.  Here is a taster of the many things that have been occurring in my world:-

Case 1

A good deal of time has had to be spent dealing with a contentious matter being litigated by HMRC.  This relates to “creative” arrangements dubbed by HMRC as a tax-avoidance scheme.

The day of a long-awaited Directions Hearing before a Judge of the First-tier Tax Tribunal finally arrives, and I and my QC have to be on top form.

In essence, HMRC are attempting to litigate the matter in a piece-meal fashion by refusing to issue all relevant closure notices in respect of the individuals and companies whose tax affairs are affected by the Arrangements.  Also, the issue of whether a Lead-Case would be chosen as being representative of all issues is a matter of dispute.

The outcome was a partial success.  My QC seemed to wipe the floor with Counsel for HMRC and the Judge ordered HMRC to issue the long argued for closure notices.  However, the issue of the correct Lead-Case was not finished off and it seems that we will have to go back to the Tribunal in February 2011 for Round 2 of this battle.

As Churchill would perhaps have said “It is not the end, nor the beginning of the end, but it is the end of the beginning”.  More on this in due course.

Case 2

A previously mentioned corporate reorganisation gains urgency as a new property acquisition needs to be completed in a short time scale and the desire is for the acquisition to be made by the going forward Property Company.  However, an impediment is identified being the charge to SDLT that will arise if the new property is acquired by Property Company and then leased back to Trading Company, which is intended not to be within the same group as Property Company.  Given the lease terms that the financing bankers will insist upon, the SDLT charge on the creation of the lease could be some £400k!

A solution is quickly identified.

The new property will be acquired by the new holding company of Trading Company and the lease to Trading Company will be exempt SDLT due to the group relationship that will exist between those two companies.  In due course, (say by 31 December), the holding company can be “reconstructed” under s110 Insolvency Act 1986 and its property business can be transferred to a new Property Company without triggering SDLT (or any other taxes).

The bank are informed and are happy with the proposals, so it’s full steam ahead.

Case 3

On the topic of SDLT, an Irish client wants to transfer a portfolio of UK investment properties to an offshore company.

UK CGT is not an issue as the client is non-UK resident and Irish CGT seems not to be an issue as the properties are not standing at a gain in Euro terms.

The issue is the SDLT that will apply as there is an automatic market value rule where properties are acquired by a company connected with the vendor.  The potential SDLT could be some £350k!

A possible solution lies within the rather obtuse rules regarding transfers of properties into and out of partnerships.  If the property business is conducted by the client in partnership (e.g. with his wife) and if the properties are then transferred to an entity connected with the partners (e.g. an offshore company that they control), it seems that no SDLT will be payable.  We are instructed to obtain an Opinion from Leading Tax Counsel on this rather difficult area of Law and, subject to that Opinion being favourable, proceed with all haste.  A good result!

Case 4

A difficult negotiation with HMRC’s Capital Taxes Office is reaching the end-game.

A client established a trust years ago (before he was one of our clients) and the IHT position was neither reported nor agreed at that time.  A big oversight!

It seems reasonably clear that no IHT should be due as the asset gifted into trust was a shareholding that should qualify for Business Property Relief notwithstanding the fact that the company owned a certain amount of investment property (as the test is a “wholly or mainly” one), but certain of the events of over 16 years ago are proving difficult to demonstrate.  A detailed report is prepared, which points firmly to the conclusion that no IHT liability arises because of the availability of BPR and HMRC are urged to agree the position.  A further trip to the Tax Tribunal is not really wanted, but is not being ruled out.
Case 5
Not a “case”, but I am asked to be the speaker for the Chartered Institute of Management Accountants’ tax update conference.  I have to speak all afternoon on the tax changes introduced by the Coalition Government and on CGT planning ideas generally.  A three-hour session with one speaker seems to be a trifle daunting (for the audience), but it seems to go down quite well and they threaten to invite me back!

Case 6

A client calls in to discuss a delicate share valuation matter.

Why delicate?  Because he acts as advisor and confidante to the family of controlling shareholders, who want to buy-out a few small minority shareholders for “fair value” and he is one of the minority shareholders.

Can I provide independent advice in this regard, as he is desperate to be fair (and to be seen to be fair) to all parties (including himself).  Of course I can!

I explain the theory of share valuations and the difference between “fair values” and “market values”.  I also explain that whatever valuation I come up with, it will not be binding on the parties as the company’s Articles of Association do not have a compulsory “fair value” clause.

The client is happy enough, as he will be seen to be acting in an impartial and overtly “fair” manner; he also understands and accepts that ultimately, it is up to the respective parties to agree a mutually acceptable price for the shares.

The client is even happier when I explain how the company can buy-in the shares in circumstances so that CGT will be payable; as the CGT annual exemption is over £10k, a husband and wife couple could obtain over £20k tax-free this way.
The weekend arrives; I look forward to the domestic bliss of pig feeding, fruit picking and jam making.

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