Principal Private Residence (PPR) & A Trust

A client has transferred a residential property into a discretionary trust. The value of the property is over the IHT nil rate band. Are there are CGT implications? If the trustees sell the property in the future can they claim principle private residence relief?

A transfer into a discretionary trust is a chargeable lifetime transfer so this would be immediately chargeable to IHT on the amount over the IHT nil rate band (£325,000) and would be taxed at 20%. If the settlor were to die within 7 years of the transfer into the discretionary trust an additional 20% could be payable as the IHT rate on death is 40%.

As far as capital gains tax is concerned a claim under TCGA 1992 s260 could be made to hold over the gain on the way into the trust because this is a chargeable lifetime transfer within the meaning of the Inheritance Tax Act 1984 and is not a potentially exempt transfer.

The trustees could be eligible to claim principle private residence relief under section 225 of TCGA 1992 if they meet the normal qualifying conditions.  The qualifying conditions under TCGA 1992 s225 i.e. a beneficiary is permitted to live in the property under the terms of the trust deed.  Principle private residence relief cannot be claimed when an s260 claim as been made as per s226A TCGA 1992.’    Ie. the trustees cannot claim relief on a disposal (the later disposal) if the acquisition cost of the property has been reduced by a gift hold-over relief claim under s260 made by any person on an earlier disposal.  Special transitional rules may allow some private residence relief to be claimed by the trustees if gift hold-relief under s260 is given in respect of a transfer to the trustees which was made before 10 December 2003.


Two sisters inherited a property development business when their father passed away. They continued this business as a partnership renovating and developing properties to sell on at profit. One of the sisters wants to buy one of the properties for herself. She is to pay market value but the partnership will make a loss due to the cost of the improvement.  Could this loss be claimed as a trading loss of the partnership with each partner claiming loss relief accordingly?

As this business is a trading activity and not a property rental business the properties will be shown in trading stock in the accounts.  Trading stock is “trading stock in relation to a trade means anything (whether land or other property) which is sold in the ordinary course of trade.”

If a loss is generated from the sale of trade stock on the open market, then trading loss reliefs would apply and a claim could be made to set the loss off against general income.

However, as one of the sisters wants to buy the property for herself the goods for own use rules would come into effect and the commerciality of the loss needs to be considered.

ITTOIA 2005 s172B applies where the trading stock is appropriated by the trader.   The legislation confirms that when calculating the profits of that trade the market value at the time of the appropriation is brought into account as a receipt.   This is irrespective of any cash consideration paid.  Therefore, the partnership would treat the appropriation by one of the partners as a sale at market value.

The commerciality of the loss must then be considered.  How has a loss been generated?  Was the cost of improvement excessive simply due to the fact that a partner in the business knew she would acquire the property for personal use? Was there use of more expensive materials used to renovate and furnish the property?

If a claim for trade loss relief is made by the partners following the appropriation, then there is a potential restriction to the claim unless it can be shown that the trade is commercial.  ITA 2007 s66 imposes the restriction if the trade is not carried on on a commercial basis and with a view to the realisation of profit.


Up until 6 April last year, the distribution of cash to shareholders on the winding up of a trading company by a liquidator, was usually taxed as a capital gain, potentially taxed at just 10% with the benefit of entrepreneurs’ relief.

However, last year’s Finance Act introduced a targeted anti-avoidance rule that may tax such a distribution as a dividend at income tax rates up to 38.1% under certain circumstances.

HM Revenue and Customs have recently issued guidance in an attempt to clarify when the new anti-avoidance rule would apply.

Broadly the anti-avoidance is intended to catch situations where the old company is wound up and a similar business is carried on by a connected business. Note however, the distribution would only be taxed as a dividend at income tax rates if one of the main purposes of the transaction was to avoid tax. This is a complex area so please contact us to discuss your plans so you do not fall foul of the new anti-avoidance rule.


The House of Commons Work and Pensions Committee has recently published a report calling on the Government to close the loopholes that allow “bogus” self-employment practices, which burden the welfare state but reduce the tax contributions needed to sustain it.

This follows the “Matthew Taylor” inquiry which took evidence during February and March 2017 from witnesses including representatives of companies such as Uber, Amazon, Hermes and Deliveroo. Most of the people working for such organisations were not on the payroll and have limited workers rights and are paid for each delivery or “gig”. The Committee recommended a default assumption of “worker” status, rather than “self-employed”, and said that the incoming Government should set out a roadmap for equalising the NICs paid by employees and the self-employed.

Mr Taylor was also asked to produce a report on the status of such workers and suggested that a new category of “dependent contractor” should be established, but the report did not conclude on how such a worker should be taxed.


Working parents can start applying for two new Government childcare schemes launching this year – Tax-Free Childcare which begins immediately and 30 hours free childcare which starts in September.

This means that working parents of children, aged under 4 on 31 August 2017, can now apply through the new digital childcare service for Tax-Free Childcare and receive a Government top-up of £2 for every £8 that they pay into their Tax-Free Childcare account.  This will apply to children under 12 years old but parents of disabled children under 17 will also be able to apply for Tax-Free Childcare.

This new scheme is designed for working families, including the self-employed, in the UK. For every £8 you pay in, the government will add an extra £2, up to £2,000 per child, or £4,000 per year for disabled children under 17 years old. The special account is then used to pay for childcare with an OFSTED registered nursery or childminder.

In addition, parents of 2-3 year olds, who will be eligible for a 30 hours free childcare place in September 2017, can apply through the childcare service and start arranging a place with their childcare provider.


A scheme using Employee Benefit Trusts (EBTs) as a means of remunerating directors and staff has been defeated by HMRC in a recent Supreme Court case.

Such schemes had been used by many employers to avoid PAYE and national insurance contributions (NICs) and involved complicated trust structures and “loans” to the employees. The Supreme Court judges have ruled that these loans were in substance employment earnings when payments were made to the trusts and are thus ineffective in avoiding PAYE and NICs.

The anti-avoidance rules have also been strengthened in the latest Finance Act with the intention of blocking the use of similar schemes including the transfer of the liabilities to the employee.

Many employers were awaiting this decision and must now decide whether or not to settle with HMRC for the outstanding tax due. If you have been involved in such schemes please contact us to discuss what action you now need to take.

Sick pay for zero hours contracts?

You have a number of employees who are engaged on ‘zero hours’ contracts, and thus only work as and when required. If they fall sick, will SSP be payable?

To fall within the SSP scheme, the individual must be an employee for the purposes of Class 1 National Insurance Contributions.  There is no room to discuss what an employee is here, but suffice it to say that simply being a ‘worker’ is not sufficient – to a self-employed bricklayer will not qualify, even if required to give personal service.


The employee will only qualify if they have average earnings at least equal to the NICs Lower Earnings Limit (£113 per week in 17/18).

Average earnings are calculated over the 8 weeks prior to the initial commencement of the Period of Incapacity for Work (PIW).

Assuming they meet this condition, then the trickier bit is working out how much to pay them.  SSP is paid from the 4th Qualifying Day (the first 3 being Waiting Days), and to this end, it is necessary to decide which are the Qualifying Days (QDs).

Qualifying Days

 If there is an agreement between the employer and employee as to the Qualifying Days then there is no problem, but usually, there won’t be – so here the legislation steps in.  Incidentally, it is not permitted to agree that there are no QDs in a week, or that sick days don’t count or any other such devious arrangement.

Regulation 5(2) of the Statutory Sick Pay (General) Regulations 1982 gives 3 possible alternatives…

(2)          Where an employee and an employer of his have not agreed which day or days in any week are or were qualifying days the qualifying day or days in that week shall be—

(a)    the day or days on which it is agreed between the employer and the employee that the employee is or was required to work (if not incapable) for that employer or, if it is so agreed that there is or was no such day,

(b)    the Wednesday, or, if there is no such agreement between the employer and employee as mentioned in sub-paragraph (a),

(c)     every day, except that or those (if any) on which it is agreed between the employer and the employee that none of that employer’s employees are or were required to work (any agreement that all days are or were such days being ignored).

So, in essence:

(a) will apply where there is a rota or schedule so that it is known in advance which days the employee was due to work; those agreed days will be the days for which SSP is potentially payable

(b) will apply where there is a rota or schedule so that it is known in advance that the employee was not due to work that week at all; there will only be one Qualifying Day in the week, and that day will be Wednesday

(c) will apply if there is no rota or schedule in place; every day will be a Qualifying Day for SSP.

It is, therefore, possible for the QDs to change from week to week.