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APC Valuation Pathway > Capital Taxation > Flashcards

Capital Taxation Flashcards

1
Q

What is the statutory basis for capital gains tax?

A

The Taxation of Chargeable Gains Act 1992

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2
Q

What is the statutory basis for IHT?

A

Inheritance Tax Act 1984

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3
Q

What is the statutory basis for SDLT?

A

The Finance Act 2003

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4
Q

What is the basis of value for IHT and CGT?

A

Market value

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5
Q

What is the definition of market value under VPGA 15 for these properties?

A

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.

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6
Q

What did the Duke of Buccleuch case set out?

A

large estates should be ‘prudently lot’ to achieve the best possible price for the property.

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7
Q

What did the Lady Fox case set out? (3 key points)

A

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.

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8
Q

What did the Clay case set out and what did Walton v IRC say?

A

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.

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9
Q

Where is the definition of market value for IHT found?

A

Section 160 IHT Act (1984)

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10
Q

What is UK VPGA 15

A

Provides an overview of the statutory basis of market value for IHT CGT SDLT and ATED.

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11
Q

What is ATED

A

Annual tax on enveloped dwellings

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12
Q

What is inheritance tax?

A

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.

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13
Q

What is the date of valuation for IHT?

A

The moment before death. This was designed to ensure interests that terminate on death are treated as part of the estate.

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14
Q

What is the IHT threshold?

A

£325,000

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15
Q

What is the tax rate for IHT?

A

40%

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16
Q

What is the nil rate band for IHT?

A

The value of an estate that is less than £325,000.

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17
Q

Can the nil rate band for IHT be transferred?

A

Yes, if your estate is being inherited by your spouse or partner they inherit your nil rate band.

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18
Q

When is the standard 40% rate used in IHT?

A

On amounts over £325,000

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19
Q

What reliefs are available for IHT?

A

Quick succession relief
Agricultural and Woodland relief
Business property relief
Taper relief

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20
Q

What is exempt from IHT?

A

Foreign properties owned by a person living abroad
Transfers between husband and wife or between civil partners are exempt.
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.

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21
Q

what does undivided shares mean in IHT?

A

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.

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22
Q

Why did you carry out desktop valuations for your IHT cases?

A

Had sufficient information to do from the desk
Agreed with client – in working agreement with HMRC

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23
Q

Tell me about Wight and Moss v CIR (264 EG 935) 1982 case (Nellie Wight)

A

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

24
Q

what is a leasehold

A

A leasehold agreement is where you occupy a property interest for a defined period of time from the freeholder.

25
Q

what effect does a short leasehold have on value?

A

Depends on terms but generally Will decrease property value

26
Q

what is the leasehold enfranchisement method?

A

Leasehold enfranchisement is the process you go through to either extend your lease, or purchase a share of the freehold

27
Q

What law relates to undivided shares for valuations on or after 1 January 1997?

A

Trusts of Land and Appointment of Trustees Act 1996 (TLATA)

28
Q

What law related to undivided shares for valuations before 1997?

A

Law of Property Act 1925

29
Q

How do you calculate Capital gains tax?

A

Work out the difference between what was paid for the property and the amount received when sold.

30
Q

What are chargeable assets in relation to CGT?

A

Assets you pay capital gains tax on when you sell

31
Q

examples of chargeable assets CGT

A

Most personal possessions worth £6,000 or more apart from your car

Property that is not your main home

Your main home if you’ve let it out

Any shares not in an ISA or Personal equity plan (PEP)

Business assets

32
Q

what assets do you not pay CGT other than personal home?

A

ISA or PEP (personal equity plan)
UK government gilts and bonds.
Betting or lottery winnings.

33
Q

You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if what applies?

A

you have one home and you’ve lived in it as your main home for all the time you’ve owned it

you have not let part of it out

you have not used a part of your home exclusively for business purposes

the grounds, including all buildings, are less than 5,000 square metres

you did not buy it just to make a gain

34
Q

What is important to remember when valuing undivided shares in land?

A

Need to remember that I am valuing the particular interest which the transferor has. Not the whole property (Walton v CIR, 1995)

35
Q

What rights does a hypothetical vendor in an undivided share agreement have?

A

Right to receive appropriate portion of net income
Appropriate share of net sale proceeds
Right to occupy unlet property jointly with other co-owners

36
Q

what discounts are to be applied when valuing an undivided half-share interest?

A

10% - where other co-owner is not in occupation and the purpose behind the trust no longer exists

15% - where the other co-owner is not in occupation, but they have a clear right to occupy as main residence and the purpose behind the trust still exists.

15% - where the other co-owner is in occupation as their main residence.

37
Q

What RICS guidance relates to capital taxation valuations?

A

VPGA 15 – UK Red Book supplement 2023

38
Q

Talk me through the reliefs for SDLT

A

First time buyer’s relief

Multiple dwelling relief

Charity relief

39
Q

Talk me through the exemptions for CGT

A

ISA or PEP.
UK government gilts and bonds.
Betting or lottery winnings.
Main home

40
Q

Talk me through the exemptions for SDLT

A

no money or other payment changes hands
property is left to you in a will
property is transferred because of divorce or dissolution of a civil partnership
you buy a freehold property for less than £40,000

41
Q

What is the threshold for CGT?

A

£3,000 or £1,500 for other trustees

42
Q

What is the threshold for SDLT?

A

£250,000 for residential properties

£425,000 for first-time buyers buying a residential property worth £625,000 or less

£150,000 for non-residential land and properties

43
Q

What are the Capital Gains Tax rates?

A

Commercial – 10% lower rate 20% higher rate
Residential – 18% lower rate 24% higher rate

44
Q

What are PETs?

A

Potentially Exempt Transfers – aka lifetime transfers

Enables an individual to make gifts of unlimited value which will become exempt from Inheritance Tax (IHT) if the individual survives for a period of seven years.

45
Q

What are undivided shares?

A

Equal undivided part or share of land or property.

46
Q

What are the two ways of owning a undivided share?

A

Joint tenancy
Tenants in common

47
Q

Which tenancy is the most common? (Undivided shares)

A

Joint tenant used mainly by married couples
Tenancy in common used by friends, family and unmarried couples.

48
Q

Why did you value the bungalow in Swansea freehold with vacant possession?

A

Part of the definition of CT as found in LGFA 1992

49
Q

What was the date of valuation for the house in Bushey?

A

Date just before death. sometime in 2023.

50
Q

What is Taper relief?

A

Applies to gifts given in last 7 years of life, the further it is from death the less tax you pay:

3 to 4 years 32%
4 to 5 years 24%
5 to 6 years 16%
6 to 7 years 8%
7 or more 0%

51
Q

What is it when the market floods?

A

Means where there is an influx amount of assets on the market which can lead to drops in price.

52
Q

What is capital gains tax?

A

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

53
Q

What is inheritance tax?

A

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

54
Q

What is Stamp duty land tax?

A

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.

55
Q

What is Annual Tax on Enveloped Dwellings?

A

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

APC Valuation Pathway (10 decks)

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