Capital taxation Flashcards
How does Council Tax work?
Annual fee that is payable to local council which contributes towards local services such as bin collection, police and fire services, leisure and recreation
How does it differ from business rates?
It is paid on domestic property as opposed to non-domestic property
How is Council Tax calculated?
Properties are placed into 1 of 8 CT bands based on the value of the property as at 1 April 1991 but taking account of its physical state and its locality as at 1 April 1993
What bands exist?
A-H
What Council Tax Reductions exist?
- Single person discount
- Student discount
- Short/long term empty discount
How can Council Tax be challenged?
A challenge is lodged with the assessors
When might a property be revalued for Council Tax purposes?
- Material reduction in value - part has been demolished, change to locaility or physical state
- Material increase in value - building, engineering or other works that have been carried out to the property
Who pays Council Tax?
The occupier of domestic property (owner or tenant)
What valuation dates apply for Council Tax?
- 1 April 1991
- Takes account of locaility and physical state as at 1 April 1993
What type of purchase price discounts are not taken into account in Council Tax valuations?
Right to Buy
When and how are new build properties added to the Council Tax list?
- When they are completed
What evidence can be used in a Council Tax challenge?
- Evidence of similar properties in lower bands
- Sales evidence
- Evidence of change to the property
Who deals with Council Tax challenges?
Scottish Assessors
How and who can you appeal a Council Tax challenge decision to?
- Prepare case
- Appeal to Scottish Assessors
Under what circumstances may Capital Gains Tax be payable?
When you dispose of an asset and make a gain
What is the definition of market value under the Taxation of Chargeable Gains Act 1992?
The definition of Market Value for taxation is the price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time
What rules apply if a client sells their home/live abroad/are a company registered abroad?
UK residents are still obliged to pay CGT even if the assets are abroad or you live abroad
When is CGT not paid?
- Primary residence if its been your sole residence
- ISA or PEP
- Government Bonds
- Betting wins
Is CGT payable on gifts?
- Don’t pay CGT on assets that you give or sell to your spouse
- Unless you are seperated and did not live together during the tax year
- Or you give it to them for their business to sell
What tax reliefs are available?
How is CGT calculated?
- Only pay CGT on amounts above your tax free allowance
How is CGT calculated if a property is jointly owned?
Pay on your share only
What costs can be deducted from CGT liability?
- LBTT
- Estate Agent & Solictor Fees
Does CGT apply to buy-to-let properties?
Yes
Is CGT paid on property owned and sold by a limited company?
No you would pay corporation tax
When is CGT paid after a property is sold?
Need to report the disposal within 60 days of the date of completion
What CGT rate is currently payable?
- Basic Rate Tax - 10% or 18% on resi
- Higher Rate - 20% or 28% on resi
What rules apply if a CGT loss needs to be reported?
- Amount is deducted from the gains you made in the same tax year
- If your total taxable gain is still above the tax-free allowance you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year
When is IHT payable?
Tax on the estate (the property, money and possessions) of someone who has died
When is IHT not payable?
- Estate is below threshold
- Leave estate to spouse, civil partner or charity
What is the current IHT rate?
- 40%
- 36% if 10% of net value estate is left to charity
What reliefs and exemptions apply?
- Taper releif
- Business releif
How do gifts work for IHT purposes?
Gifts given within the last 7 years of your live may be liable for IHT
What is probate?
Probate is the legal right to deal with someone’s property, money and possessions (their ‘estate’) when they die
When is it needed?
If you are named in someone’s will as an executor
When is it not needed?
All property and bank accounts of the person who has died were held jointly with someone who is still living
What is ‘prudent lotting’?
The concept that the vendor sells the property in the lots that will command the highest price
What is the Annual Tax on Enveloped Dwellings?
Annual tax payable companies that own UK residential property valued at more than £500,000
Tell me about IRC v Clay.
Tell me about Walton v IRC.
Describe capital taxation and capital gains’ taxation in relation to property ownership for domestic and international investors.
What steps could you advise a client to take to mitigate a future liability for inheritance tax?
Leave 10% of net value of estate to charity
What transfer tax/duties are attached to property transactions?
LBTT
Explain the valuation approach used when valuing a share in an interest in a property for capital taxation purposes.
- Divide full value by number of shares required
- Deduct an allowance from the remainder to account for the disadvantages of owning a part share in the property
Describe tax efficient structures which may have an impact on capital taxation and capital gain taxation.
Are there any specific tax measures to encourage or restrict property investment in your area of practice?
Explain in detail the consequences and differences between asset and share investment transactions with a specific insight on capital gains’ taxes.
What is VAT?
A tax added to most products and services sold by VAT registered businesses
What VAT rates are payable?
- 20%
- 5%
- 0%
What recent changes have been made to VAT and construction?
What are capital allowances?
A type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax
What can they be claimed on?
- Equipment
- Machinery
- Business vehicles
What type of capital allowances exist?
- Plant and machinery allowances
- Structures and buildings allowances
What is the Annual Investment Allowance (AIA)?
AIA is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit
What is plant and machinery defined as?
- Items that you keep to use in your business, including cars
- Costs of demolishing plant and machinery
- Parts of a building considered integral, known as ‘integral features’
- Sme fixtures, for example fitted kitchens or bathroom suites
- Aterations to a building to install plant and machinery - this does not include repairs
1.
What does plant and machinery include and exclude?
What can the AIA be claimed on?
What rates currently apply to capital allowances?
What are first year allowances?
How does the Finance Act 2001 relate to capital allowances?
What RICS guidance relates to capital allowances and what wider suite is this part of?
What is land remediation relief?
What RICS guidance relates to capital taxation valuations?
When is this applicable?
ATED
What rates apply?
ATED
Explain any other current reliefs you are aware of and how they are affected the market.
Explain your use of the VOA manuals when carrying out capital taxations.
How have you valued a property/asset for capital taxation purposes?
What do you understand from UK VPGA 15?
Explain the Wight and Moss v CIR case.
For IHT purposes, when might a single asset discount be applied?
For IHT purposes, when might a single asset discount be applied?
Where a property is jointly owned by two individuals, explain how you might apply a share discount based on whether a shareowner is in occupation or not.
Explain your understanding of falling value relief.
For IHT purposes, can MV be reduced to take account of preparation works for the prudent vendor to prepare the property for marketing?
For the same, can more extensive works be taken account of?
**
Tell me about how you have undertaken measurement and inspection for capital taxation purposes?
What valuation methods have you used for capital taxation purposes?
How have you incorporated taxable deductions within capital tax valuations?
How have you negotiated valuations or banding?
ow have you settled a capital taxation case?
How have you produced a valuation on a historic valuation date for tax purposes?
How have you participated in the preparation of a case to proceed to the appropriate tribunal?
Rosemount, how did you arrive at your value? Was the evidence readily available?
Tilydrone Road, talk me through the information you used to provide a desktop valuation?
How did you find suitable comparable evidence?
How did you arrive at a retrospective valuation?
Banff - tell me about your involvement here and the basis of the negotiations?
What are your level 2 examples?
Summary of Experience
- Inheritance Tax valuation of flat in Rosemount - I was required to provide a date of death value in this case. I gathered comparables from that period.
- Capital Gains valuation of bungalow on Tilydrone Road - Had carried out Home Report on this property that had subsequently sold. Previous owners instructed us to carry out a retrospective valuation as at 1991 as they were establishing liability for CGT. More challenging valuation as quality of information decreases the more retrospective the valuation is.
- Negotiation with VOA - colleagues value was being scrutinised by VOA. Reached negotiation stage in which I was permitted to assist with. I was tasked with presenting my colleagues comparable evidence and highlighting their rationale. Negotiation comprised the VOA and my colleague explaining how they reached their conclusions.
How has LBTT affected different market sectors?
What is the threshold for CGT?
How does taxation of property in Scotland differ from England and Wales?
How would you value a pro indiviso half share for CT?
How do you take account of a bid by special purchaser?
Can you give an example of a particular feature of a valuation for CT? - e.g. date specific.
Could HMRC sue you for an inaccurate valuation?
Who scrutinises the value returned?
Who is your client?
What have been your main sources of information and guidance?
What is a gift with reservations?
When a person gives away property but still retains some right or benefit over it
