What tangled webs we weave

spider-web-300x180Another exciting week, but a very short one because of my impending summer holiday.  However, still time for some interesting Case Studies:-

Case 1

A family trust, of which I am a trustee, has undertaken a property development activity as a joint venture with the building contractors (of which there are two!).

This was simple enough when the intention was to sell the property post development, but now the parties want to hold it as a long-term investment and raise bank finance on it.

Suddenly, it’s not so simple; there are all sorts of direct and indirect tax issues (i.e. income tax and VAT) and quite horrific liability issues for the trustees in respect of the refinancing.

Many telephone calls between trustees, beneficiaries, lawyers and bankers ensue.

  • How can rent due to one entity be shared with others?
  • How can a taxable disposal of the property at market value be avoided?
  • Will complicated options be a solution?
  • What will the bank think about all of this?

As ever, there is a virtue in simplicity.  The joint venturing builders need to be “bought-out” as was always intended by their invoicing for their “overage” amounts.

They get money, the trustees retain total control of the property and the bank lend to the trustees on non-recourse terms.

Everyone is happy and the tax position is neutral, which can’t be bad.

Case 2

A client has two large properties and a conundrum.

He has moved out of his old house as he intended to sell it and has moved into an expensive London flat which has rocketed in value (lucky man).

He has elected for the new flat to be his main residence for CGT purposes, but cannot sell the old house because of a fire.  Insurers are friendly and are paying for the old house to be substantially and sympathetically restored.

But time has passed and he is concerned that a sale of the old house now will result in some CGT being payable.

He wonders if HMRC will allow him to sell the new flat and take the (large) gain on that property tax-free, and then resume occupation of the newly restored old property, which he has always preferred.

It’s very simple; there is nothing for HMRC to challenge.

As he has made a suitable election, the new flat will be CGT free; indeed we will switch the election back to the old house as soon as we know there is a buyer for the flat, thereby maximising the CGT exemption on the old house.

He’s very happy and HMRC cannot disturb his happiness!

Case 3

A client wants to provide capital for daughters, who are sensible but young.

It’s a no-brainer; he must use a trust structure to protect the young ladies from their “predators and creditors”.

He would quite like to drip-feed the trust, which is perfect from an inheritance tax perspective – he can make regular gifts out of his income and the transfers into trust will be exempt IHT.

Monies can be invested to provide an income for the girls and the trust can be flexible so that capital and income need only be paid to them as and when the trustees think they should get it.

He likes the idea and one of my bright young things is instructed to start drafting.

Case 4

Oh what tangled webs we weave… (Rabbie Burns).

A tax avoidance scheme that looked rock-solid when it was hatched is being vigorously attacked by HMRC.

We fully disclosed everything under rules introduced in the 2004 Finance Act concerning tax avoidance schemes and HMRC’s view is that it cannot possibly work in the way intended (and in the way indicated by the legislation) because it is, err, a tax avoidance scheme.  Hmmm….

Anyway, we have a date fixed for a preliminary hearing at the Tax Tribunal, which will involve me producing a witness statement and giving evidence.

I doubt it will be great fun, but at least my eminent QC continues to tell me that our case is strong and HMRC’s case is as wispy as gossamer.

I wonder what the Judge will think.

I’d better start writing my witness statement…

So now I must go hope and pack the car for a long drive through France to sunny Provence.  You will not hear from me for three weeks, dear reader, but I shall be thinking of you (sort-of).

And so to bed…

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