Capital Taxation Flashcards
If a deduction from the vacant possession value is deemed necessary, what is the normal expectation in IHT cases?
Should not normally exceed 10% of vacant possession value
or £15,000
(whichever is lower)
What was found in regards to ‘Market Value’ in the case of Ellesmere v IRC?
Market price was based on the separate value of various parts
Price must be estimated on the basis that the properties were sold in whatever lot/s would realise the best price
Relevant case law for principle of ‘open market sale with adequate publicity’?
Lynall v IRC (1972)
Gray v IRC (1994)
What was found in Duke of Buccleuch v IRC (1967) in regards to Prudent Lotting?
The Revenue had adopted the correct approach in dividing the estate into 532 separate units for valuation purposes
Relevant case law for ‘willing seller & willing buyer’
Gray v IRC (1994)
Case law relevant to the principle that a ‘special purchaser’s bid be reflected’
IRC v Clary (1914)
&
Watson v IRC
What rate do individuals pay on CGT on any chargeable gains on or after 6 Apr 2016?
10% or 20%
(except for disposals of residential property, ie Private Residence relief does not apply)
When was Capital Gains Tax first introduced? And in which act?
Finance Act 1965
What did the case of Watson v IRC establish in regards to a ‘special purchaser’?
A special purchaser cannot be hypothetical
Needs to be identified
Facts can be elicted about their likely attitude to such a purchase
What did IRC v Clay establish in relation to a ‘special purchaser’?
When there is a special purchaser willing to buy at a considerably higher price than anyone else & their presence is known (enabling a vendor practically to rely on extorting them) then the value is represented by the higher price or by close proximation
How was ‘the price’ defined in Duke of Buccleuch v IRC 1967?
The price that the property might reasonably be expected to fetch
Defined as the gross sales price for the property without deducting any selling costs
How was ‘the price’ understood in Ellesmere v IRC (1918)?
The best possible price that would be obtainable in the open market, if the property was sold in such a manner (and subject to such conditions) as might be reasonably calculated to obtain for the vendor the best price of the property
How did Duke of Buccleuch v IRC (1967) understand ‘the property’?
Not a reference to the whole estate being valued, but meant any part of the estate that was proper to treat as a unit for valuation purposes
How did Ellesmere v IRC understand ‘market price’?
A price based on the separate values of the various parts
What is a ‘chargeable gain’?
The increase in an asset’s value between the time its purchased and the time its sold
(IHT 3) Valuations for tax purposes are based on the concept of…
A hypothetical sale for which a statutory definition is required
May also be necessary to undertake apportionment of value in some cases
Can unused annual exemptions be carried forward to later years?
No
Prudent lotting (Duke of Buccleuch v IRC 1967), when can ‘lotting’ be rejected?
If there was evidence that it was artificial or unnatural
The statutory definition & interpretation of Market Value for tax purposes is _____ as the definition of Market Value in VPS 4?
Not exactly the same
Which section of the UK National Supplement relates to Capital Taxation?
UK VPGA 15
If the asset was acquired on or after 31 Mar 1982 what will the acquisition cost normally be?
The price or premium paid for the asset
Where can you find the definition of ‘connected persons’?
Section 286 of the TCGA 1992
What id there is no consideration or disposal is not at arms length?
Disposal is deemed to be fair for consideration equal to the market value of the asset at the date of disposal & HMRC may seek our advice in determining this sum
The disposal proceeds are normally…
The consideration received for the disposal (ie price, premium, compensation, insurance, etc) & this is ascertained by HMRC
When may a ‘deemed disposal’ arise?
When a taxpayer receives a capital sum as compensation for damage or injury to an asset, or for the surrender of rights
When may a ‘part disposal’ arise?
If a taxpayer-
a) Disposes of a physical part of the property
b) Grants a lesser interest in the whole (or part) of a property
What may a ‘disposal’ take the form of?
The sale of a freehold interest in a property
The assignment of a leasehold for interest or capital sum
The gift of a freehold or leasehold interest
When does the charge for ‘Capital Gains Tax’ arise?
When there is disposal of an asset
What is the current rate of corporation tax?
(written November 2022)
20%
What is ‘TCGA 1992?’
Taxation of Chargeable Gains Act (1992)
Who is roll over relief available to?
All taxpayers (individuals and companies) who are carrying out a trade, dispose of qualifying assets & reinvest the proceeds in other eligible assets
What is taxed in Inheritance Tax?
The value transferred by a chargeable transfer
What is the annual exemption amount in 2022/23?
£12,300
Who pays Inheritance Tax?
The transferor (unless otherwise stated)
Executors/ Administrators (commonly referred to as Personal Representatives) are responsible
Case law relevant to the concept that ‘the sale is hypothetical’
IRC v Gray 1994
&
IRC v Crossman (1937)
What happened in the case of IRC v Crossman (1937)
Subject Property was comprised unquoted shares which would have precluded an actual sale on the open market at the date of death
House of Lords confirmed Commissions view that the principle value of shares was the price that would be realised at date of death on assumption that purchaser would be holder of same shares
Relevant case law to the concept that ‘all preliminary arrangements be made beforehand’
Duke of Buccleuch v IRC (in Court of Appeal) RVR 9/9/65 p571
Relevant case law to principle that ‘the vendor is hypothetical’
Lynall v Inland Revenue Commissioners (1971)
Relevant case law to the concept of ‘prudent lotting’
Ellesmere v IRC (1918)
&
Duke of Buccleuch v IRC (1967)
What rate do individuals pay CGT on any chargeable gains before 6 Apr 2016?
Either 18% or 28%
What are the key valuation factors to consider?
Vacant possession
Undivided shares
Hope value
What is the prudent lotting principle?
Where a valuation or collection of assets can be broken up in lots may be required
The value of the whole should be considered on the assumption that it will be lotted in such a way as to maximise proceeds of the sale
What is ‘Capital Gains Tax’?
A tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value
What do Trusteed & Personal Representatives of deceased persons pay in all cases?
20% / 28%
For disposals on or after 30th November 1993, the amount of indexation allowance to be given in a computation is restricted to…
An amount which does not give rise to a loss or increase the amount of a loss
Which act introduced restrictions on the extent to which indexation allowances can create a loss?
Finance Act 1994
What is the purpose of indexation allowance?
To remove from any chargeable gain the element of gain that is due to its inflation
Does the cost of making a valuation or appointment extend to the cost of resolving any disagreement over it?
(Whether by litigation or negotiation).
No
Under what condition would the expenditure of improving or enhancing the value of a property be allowable?
Provided the expenditure is reflected in the state or nature of the asset at the time of disposal
In addition to the acquisition cost following expenditure (if incurred after the later date of acquisition or 31 Mar 1982) what may also be deducted from the disposal proceeds?
- The incidental costs of acquisition and disposal
- Any capital expenditure on improving or enhancing the value of the property (subject to conditions)
- Any expenditure on establishing, preserving or defending title to or rights over the asset
Incidental costs include expenditure on…
- Surveyors, accountants & legal fees
- Costs of transfer or conveyance (including SDLT)
- Costs of advertising or finding a buyer or seller
- Costs reasonably incurred in making any valuation or apportionment required for the purposes of the CGT computable
If the asset was acquired by the taxpayer before 31 Mar 1982 then the acquisition cost is deemed to be…
The market value of the asset on 31 Mar 1982
When there is no consideration, or asset was not acquired at arms length, the acquisition is generally deemed to be…
For a consideration equal to the market value of the asset at the date of acquisition
What is indexation allowance used for?
Now only available for disposals by companies
Which Act introduced ‘Capital Transfer Tax’?
The Finance Act 1975
What happened in the case of IRC v Gray (Executor of Lady Fox deceased) (1994)
Lady Fox died on 27 Mar 1981. She was the freeholder owner of the 3,000 ac Croxton Park Estate in Cambridgeshire, which was let to a farming partnership in which she had 92.5% interest.
Basically the question was, should her freehold reversion and her interest in the partnership be valued separately as decided by the Lands Tribunal or together as contended by Inland Revenue?
