Annual Investment Allowance

Annual Investment Allowance

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Client is buying a violin for his trade that costs £300K.  But he can't afford to do it in one go, so a group of friends is buying it via a trust.  The plan is that each year our client will buy around 10% of the then-value of the instrument.  It's quite a regular technique - the investors get a Capital return and our girl gets to play a great fiddle.

Where would this stand for AIA purposes?  I'd like to think that she can claim AIA on the first £25K of each year's part-purchase and can't find that the legislation has anything in there speaking about part-purchase.  However, it talks about buying equipment/machinery and what's being bought here are shares in the trust that owns the fiddle.  Is that an impediment

And yes I know that relentless claiming of AIA will set the girl up for a hideous Balancing Charge on cessation/sale and there'll be a messy CGT comp to deal with.  Eyes wide open, pray for 20 years of inflation and just claim 40% is my motto here.

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By Ernest N Dever
17th Mar 2011 11:08

Without knowing exactly how the arrangement will operate...

... it's hard to comments specifically, but I'd have thought that there would either be a leasing business within the trust vehicle and it would be up to the trust to claim any CAs, or it would be provided by the trust to the violinist on an HP type arrangement such that (under S.67 CAA 2001) they are deemed to be the owner of the violin and to have incurred all the expenditure on its provision when they bring it into use in their profession.  The latter arrangement seems the more likely and will only give you one AIA.

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By Constantly Confused
17th Mar 2011 16:36

£300k for a violin?

Sounds like the seller is on the fiddle...

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By MarionMorrison
18th Mar 2011 08:46

Cheap by some standards

The most expensive one a client's ever owned is a Strad 'worth' around £3M but bought with what I think were undeclared fees of over £1M and money borrowed from parts of the Russian Mafia.  Needless to say, this is not my client any more and pre-dated any MLR concerns. 

I'm still trying to establish the ownership issues.  If the trust owns the fiddle and our girl owns shares in the trust then yes, it's a leasing deal, but if it's partly owned by her and partly owned by the trust then it's fine.

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By Chris Smail
18th Mar 2011 11:49

You need to see some paperwork first

But if structured as a proper shared ownership then I cannot see why not.

Could he not buy it oughtright with a suitably secured loan from the trust and pay no tax at all for a few years?

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By MarionMorrison
18th Mar 2011 13:05

Nice thought

The catch is the motivation of the investors in the trust.  They want to be investing in something which will give them a steady capital gain.  If the trust were just a vehicle to lend money to the violinist, then the investors would be getting their share of capital growth as interest income.  Their £30K investment say, might be worth £60K in ten years time.  As the years go by and ownership is bought out, this represents £3K pa of capital gain rather than £3K of taxable interest.

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