Capital Taxation

Question 1

What is the principle legislation for Inheritance Tax?

Answer 1

Inheritance Tax Act 1984

Question 2

What is the principle legislation behind Capital Gains Tax?

Answer 2

Taxation of Chargeable Gains Act 1992

Question 3

What is the RICS Guidance Note in regards to Capital Taxation?

Answer 3

UK National Supplement - UKVPGA15 additional supplement to RICS Red Book

Question 4

Which section of the UK National Supplement relates to Capital Taxation?

Answer 4

UK VPGA 15 - U.K. Red Book National Supplement

Question 5

What does the UK VPGA 15 say?

Answer 5

IHT valuations are based on a statutory definition of Market Value which may not be the exact same as the definition within VPS 4 of the Red Book. This is because it’s subject to interpretation by the UTLC

Question 6

Why are land and property valued for IHT purposes?

Answer 6

HMRC require an IHT valuation where an estate includes land and/or property.

It must comply with s.160 of the IHT Act 1984 and UK VPGA 15

Question 7

What properties may be excluded from IHT?

Answer 7

Interests in a Trust and assets not situated in the UK

Question 8

How is IHT carried out for people domiciled in the U.K. and those not situated in the U.K.?

Answer 8

1. All individuals who are domiciled in the U.K. are subject to IHT on transfers of value of all of their worldwide assets with the exception of excluded property.
2. Those who are not U.K. domiciled are only subject to IHT in respect of their U.K. assets

Question 9

Where can the definition of the basis of value for Capital Gains Tax (CGT) be found?

Answer 9

s.272 of the Taxation of Chargeable Gains Act 1992

Question 10

Where can the definition of the basis of value for Inheritance Tax (IHT) be found?

Answer 10

s.160 Inheritance Tax Act 1984

Question 11

Where can the definition of the basis of value for Stamp Duty Land Tax (SDLT) be found?

Answer 11

s.118 Finance Act 2003

Question 12

Where can the definition of the basis of value for Annual Tax on Enveloped Dwellings (ATED) be found?

Answer 12

s.98(8) of the Finance Act 2013

Question 13

What are some valuation factors to consider when approaching an IHT Valuation?

Answer 13

Damaged property – valuers report?
Tenanted property – rent?
On the market? – higher price?
Large garden – planning?
Improvements by 3rd party
Special purchaser – has it sold?
Undivided shares - % deduction?

Question 14

What is Private Residence Relief (PRR)

Answer 14

s.222 of Taxation of Chargeable Gains Act

Legislation allows permitted area of up to 0.5ha (1.23 acres) of garden and grounds OR larger if required for reasonable enjoyment of it as a residence

Question 15

What is the threshold for IHT?

Answer 15

£325,000 per person (£650,000 with transferable nil rate band)

Question 16

What is ATED?

Answer 16

Annual Tax on Enveloped Dwellings

Question 17

What is the leading case on apportionment?

Answer 17

Salts vs Battersby 1910

Question 18

What is the leading case on the valuation of undivided shares?

Answer 18

Wight and Moss v Inland Revenue Commissioners (1982)

Question 19

What is a special purchaser?

Answer 19

Purchaser known to the market, stands to gain a benefit through the purchase of property and land therefore having a special interest in purchasing the property.

Question 20

What is the difference between a joint tenancy and a tenancy in common?

Answer 20

1. Joint tenants have the same ownership share within a property eg 50/50
2. Tenants in common have a different share interest eg 75/25

Question 21

What IHT exemptions are there?

Answer 21

1. Gifts to charities
2. Lifetime transfer to spouse
3. Transfer to family within 7 years of death

Question 22

What is a house in multiple occupation? (HMO)

Answer 22

3 people living in a property who are not from the same household

Question 23

What is probate?

Answer 23

In property terms, the administering of a deceased persons estate

Question 24

How is IHT calculated?

Answer 24

Value of the estate @ date of death

Minus

1. Nil rate band
2. Any further reliefs

= IHT owed

Taxable amount @ 40%

Question 25

How is CGT calculated?

Answer 25

Disposal price

Minus

1. Acquisition price
2. Allowable costs (improvements if value has been added)
3. Tax free allowance

= Chargeable gain

Question 26

What are the purchasers costs made of?

Answer 26

Legal fees, agent fees and stamp duty

Question 27

What are any reliefs?

Answer 27

1. Business Relief (at either 50% or 100%)
2. Agricultural Relief (at either 50% or 100%)
3. Woodlands Relief (defers IHT until timber is sold)
4. Taper Relief - if donor dies before 7 years expires after a non-exempt transfer
5. Quick succession relief - where decreased received assets on which IHT was paid within the last 5 previous years