Capital Taxation Flashcards
What is the statutory basis for capital gains tax?
The Taxation of Chargeable Gains Act 1992
What is the statutory basis for IHT?
Inheritance Tax Act 1984
What is the statutory basis for SDLT?
The Finance Act 2003
What is the basis of value for IHT and CGT?
Market value defined as:
The value the property is expected to sell for if sold on the open market.
The price is not assumed to be reduced on the grounds that the whole property is to be placed on the market at the same time. I.e flooding the market
How does the basis for CGT and IHT differ from market value?
for IHT/CGT the value of the properties are not assumed to be reduced because the market has been flooded.
What did the Duke of Buccleuch case set out?
large estates should be ‘prudently lot’ to achieve the best possible price for the property.
What did the Lady Fox case set out? (3 key points)
That the property must be valued as it actually existed at the date of valuation.
Even if a prudent seller would likely make some changes or alterations to the property before putting it up for sale.
Thirdly the property is assumed to be capable for sale in the open market even if in reality there are restrictions on sale that prevent it from being the case.
E.P.R
Existed. Prudent. Restrictions.
What did the Clay case set out and what did Walton v IRC say?
That the effects of a special purchaser can be taken into account for IHT purposes.
This was expanded in Walton v IRC in that special purchasers have to be real not hypothetical.
Where is the definition of market value for IHT found?
Section 160 IHT Act (1984)
What is UK VPGA 15
Replaces UKGN3
Provides an overview of the statutory basis of market value for IHT CGT SDLT and ATED.
What is ATED
Annual tax on enveloped dwellings
ATED is an annual tax payable mainly by companies that own UK residential property over £500k
What is inheritance tax?
This taxes the transfer of assets on death and those made during life, in particular this includes gifts made within the last seven years of life.
What is the date of valuation for IHT?
The moment before death. This was designed to ensure interests that terminate on death are treated as part of the estate.
What is the IHT threshold?
£325,000
What is the tax rate for IHT?
40%
What is the nil rate band for IHT?
The value of an estate that is less than £325,000.
Can the nil rate band for IHT be transferred?
Yes, if your estate is being inherited by your spouse or partner they inherit your nil rate band. This means that when they die they can leave an estate worth £650,000 that’s free from inheritance tax.
When is the standard 40% rate used in IHT?
On amounts over £325,000
What reliefs are available for IHT?
- Quick succession relief, this is to prevent estates being decimated by successive beneficiaries dying within a short time of each other.
- Agricultural and Woodland relief
- Business property relief
- Fall is in value relief, where the transfer occurs at a high point in the market and after this date a sale occurs at a lower value. Essentially the relief applies for sales within three years of death. Actual sale is substituted from value at date of death.
What is exempt from IHT?
- Foreign properties owned by a person living abroad
- Transfers between husband and wife or between civil partners are exempt. This applies to both lifetime and death transfers
- Annual exemption of £3,000 for lifetime transfers
- Outright gifts of up to £250 to any one person are exempt
- Lifetime transfers as wedding gifts
- Transfers to charities.
Why did HMRC instruct you to value at 1982?
Valuing as at 31st March 1982 as instructed in The Finance Act 1988.
The reason behind the rebase is that the 1970s saw significant inflation in the UK and it was deemed to be unfair to tax people on the growth in the value of their assets that was simply due to increases in general prices.
How would you complete a 1982 valuation working outside of the VOA?
I would use one or all of the following methods:
1. Property market reports on the national archives website available on public domain
2. EIG 1982 records
3. Interrogate my companies records where possible
what does undivided shares mean in IHT?
Where a land interest has joint owners or owners in common where each owner shares an entitlement to a share in the property. Such shares are held under a trust of land.
talk me through a capital tax valuation you have done
- Greenaleigh road, Billesley LEVEL 3
Advice provided:
I advised a senior surveyor at VO and HMRC that the returned value could be accepted.
How did you provide the advice:
I valued the 3 bed house in Billesley using comp method following an inspection.
I valued at date of death in line with IHT. - Baldwins Lane, Shirley LEVEL 3
Advice provided:
I advised a senior surveyor at VO and HMRC that whilst I did not accepts the agents approach, the returned value could be accepted as it was reasonable.
I advised the agent that the approach to undivided shares in Wight and Moss (1982) was not followed in his approach
How did you provide the advice:
I valued the 3-bed house in Billesley using comp method following an inspection.
I valued at date of death in line with IHT.
I initially thought the valuation was too low and communicated this to the agent who supported their statement with information relating to a lack of mondernisation and internal crack possibly due to subsidence and further comparable evidence. - Barn Lane, Solihull level 2
CGT valuation for 1982
I researched the VOA’S historic records for comparable sales evidence in 1981 and 1982
I found 5 comparables
valuing as at 31st March 1982 as instructed in the legislation.
I valued the property at £22,500
Cross referenced value with nationwide index price calculator inputting new MV to compare with 1982 value.
Senior surveyor reported value back to HMRC and case was closed. - Beauchamp Avenue, Handsworth wood
IHT valuation for residentual with leasehold unexpired term of 13 years remaining
Got comparable evidence of leasehold and freehold sales
Valued using the leasehold enfranchisement method
why did you value only 50% for Baldwins Lane?
Because the deceased owned the property with someone else.
Why did you carry out desktop valuations for your IHT cases?
Had sufficient information to do from the desk
Agreed with client – in working agreement with HMRC
What information made you change your valuation stance for Baldwins Lane?
Internal photo’s showed that modernisation was required.
Internal cracking had occurred possibly as a result of subsidence / old movement cracks from new brickwork.
Tell me about Wight and Moss v CIR (264 EG 935) 1982 case (Nellie Wight)
Provides us with important guidance on the valuation of undivided half-shares, where a co-owner was in occupation of the property at the valuation date.
- undivided half share in a dwelling house fell to be valued, following the death of one of the joint owner-occupiers
- The DV valued on the basis of the vacant possession value of the house divided by two and then deducting 10%. The Tribunal approved the DV’s approach though it increased the final deduction to 15%.
- percentage of 10 is derived from the decision in Cust
