Tax lawyers warn of double taxation risk

The Law Society attacked Inland Revenue proposals on the treatment of pre-owned assets for being “too broad” and argued that they could lead to a situation where gifts between a husband and wife could be caught.

“In theory, a man gifting a half share in his house to his wife after their marriage could be compelled to pay rent to her,” commented the Law Society chief executive, Janet Paraskeva. Similarly, she added that if an elderly person gave their home to their child but continued to occupy part of it they were likely to be a ‘nil rate’ taxpayer as they have little or no income. “But the new proposals will mean that in making the gift they will become liable for a tax charge – without the income to pay it,” she added.

The Law Society’s Capital Taxes Sub-Committee recommended that implementation of these proposals be delayed so that they could “be properly thought through”. It continued: “As they stand, the proposals create uncertainty and unfairness and, as we have seen with the rushed implementation of Stamp Duty Land Tax, it is in the interests of both the Inland Revenue and the taxpayer alike for there to be further consultation, particularly as the scope of the existing proposals is extremely wide.”

The Society also raised concerns about the position of family businesses. The handover from one generation to the next could take time, the Society argued, during which a parent might be a member of the partnership carrying on the family business and occupy property owned by the partnership. Under these proposals that parent would be liable to pay rent or tax on the ‘benefit’ of the property they are ‘enjoying’.

The Society called for the proposals to mirror “the carefully drafted” Finance Act 1986, and allow a ‘money’s worth’ alternative to a cash, rent or interest-based payment for use of the property. “This would take account of, for example, the additional responsibility and work falling upon a younger, junior partner taking over from a senior partner in the process of retiring,” Paraskeva said. The Society also said that similar consideration should be given to parents who make a gift of a share in the family home to children who live in the home with them – and who may be caring for their ageing parents. “It is not desirable to levy a special tax charge on people fortunate enough to be cared for by their own families,” she said.