Capital Tax Flashcards
What is the definition of open market value for the purposes of Inheritance Tax?
Price for property on the open market between hypothetical willing buyer and seller at valuation date (Section 160 IHTA 1984).
What is the Red Book definition of market value?
Estimated amount for which asset should exchange on valuation date between willing buyer and seller, after proper marketing, acting knowledgeably, prudently and without compulsion.
What is the difference between the IHT definition and the Red Book definition of market value?
Very similar, but Red Book slightly broader and formal; IHT strictly tied to statutory wording under Section 160.
What is the valuation basis for Capital Gains Tax?
Open market value at date of disposal, or acquisition if rebasing to 31 March 1982.
What is Agricultural Property Relief and Business Property Relief?
APR reduces value of qualifying agricultural property by 50% or 100%; BPR reduces value of qualifying business assets by 50% or 100%.
What factors should be considered when undertaking a valuation for Capital Gains Tax purposes?
Ownership interest, improvements since acquisition, 1982 rebasing (if applicable), current market conditions at disposal date.
What is the importance of the valuation date when carrying out a capital taxation valuation?
Property must be valued as it existed physically, legally, and economically at the valuation date — no hindsight.
Why is compliance with the RICS Red Book important when carrying out capital taxation valuations?
Ensures objectivity, transparency, and that valuations are prepared to international standards even if formal reporting is exempt.
What does Spencer v IRC (1962) confirm in relation to market value?
Confirms use of a hypothetical willing buyer and seller concept for open market valuations.
Why might it be necessary to adjust comparables using the Land Registry House Price Index?
To account for time differences between comparable sale dates and the valuation date where market conditions have changed.
What approach should you take if no good comparable evidence exists at the valuation date?
Use best available evidence, adjust appropriately, expand geographic area or property type slightly, and document assumptions clearly.
What is the reasoning for applying a discount when valuing part ownership interests?
Reflects the reduced marketability and attractiveness to buyers; supported by Wight v Moss (1982).
What challenges might arise when valuing a part share of a property?
Lack of direct market evidence, deciding appropriate level of discount, assessing control issues.
What should you do if the client or taxpayer disputes your valuation?
Allows Agricultural Property Relief and Business Property Relief to reduce the value of qualifying property for tax purposes.
When does the 1982 rebasing apply for Capital Gains Tax purposes?
For assets acquired before 31 March 1982, allowing the value at that date to be used instead of the original purchase price.
How do you account for hope value when valuing for Inheritance Tax?
Consider if there is realistic prospect of development or uplift at the valuation date; adjust value accordingly.
What are the requirements for land to qualify for Agricultural Property Relief?
Land must be used for agriculture at the valuation date; unused land may not qualify even if previously agricultural.
How does joint ownership of a property affect valuation for Inheritance Tax?
May require a marketability discount, recognising difficulty in selling only a part share in the open market.
What sources and methods do you use to stay up to date with changes in capital taxation and valuation practice?
CPD seminars, HMRC manuals, VOA guidance notes, monitoring relevant case law and RICS publications.
What does Section 198 of the Inheritance Tax Act 1984 provide for?
Allows Agricultural Property Relief and Business Property Relief to reduce the value of qualifying property for tax purposes.
What is the “special assumption” often made when valuing for Inheritance Tax purposes?
That the property is sold freely on the open market without special buyer/seller circumstances (i.e., no forced sale, no related parties).
How would you approach valuing an agricultural holding with future development potential for IHT?
Value primarily on agricultural use but may need to factor in “hope value” if real likelihood of development exists at valuation date.
What is the treatment of vacant possession in an IHT valuation?
Assume sale with vacant possession unless the property is subject to an existing lease that materially affects market value.
Why is it important to consider the valuation date and not subsequent events in capital taxation valuations?
Only information known or reasonably foreseeable at the valuation date can be considered; later market movements or events are ignored (no hindsight).
