Capital Taxation

Question 1

What is the statutory basis of inheritance tax

Answer 1

The inheritance Tax act 1984

Question 2

Where is the definition of market value for inheritance tax

Answer 2

Section 160 of The inheritance Tax act 1984

Question 3

Where is the definition of market value for Capital gains tax

Answer 3

Section 272 of The Taxation of Chargeable Gains Act 1992

Question 4

What is the basis of value for Inheritance Tax and Capital Gains tax

Answer 4

The price which the property would reasonably be expected to fetch of sold in the open market at that time but price is not assumed to be reduced on the ground the whole property is to be placed on the market at the same time

Question 5

How does the basis of value for CGT and IHT differ than market value

Answer 5

The main difference is that the value of the property is not assumed to be reduced by the flooding of the market
Special purchasers can also be considered

Question 6

What is the standard tax rate for Inheritance Tax

Answer 6

Standard rate is 40% charged only on the part of your estate that is above the threshold

If 10% of estate is left to charity the rate reduces to 36%

Question 7

What is the case law relating to special purchaser

Answer 7

IRC Vs Clay

This was expanded in Walton v IRC in that special purchasers have to be real not hypothetical.

Question 8

What is the statutory basis for SDLT?

Answer 8

The Finance Act 2003

Question 9

What did the Duke of Buccleuch case set out?

Answer 9

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

Question 10

What did the Lady Fox case set out?

Answer 10

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. Additionally that 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.

Question 11

What is Inheritance Tax?

Answer 11

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.

Question 12

What is the date of Valuation for IHT

Answer 12

The moment just before death

ensures interests that terminate on death are treated as part of the estate.

Question 13

What is the inheritance tax threshold

Answer 13

£325,000

Question 14

What is the nil rate band?

Answer 14

The value of an estate that is not subject to IHT (£325,000). This is on an individual basis

Question 15

Can the nil rate band be transferred

Answer 15

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.

Question 16

What reliefs are available for IHT?

Answer 16

• 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.

Question 17

What are the IHT exemptions

Answer 17

• 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.

Question 18

What are PETs?

Answer 18

This is a potentially exempt transfer and is covered under Section 3 IHTA 1984. Outright gifts between individuals become exempt from tax provided the transferor survives seven years from the date of gift. During the seven year period they are called PETS.

Question 19

What is agricultural relief

Answer 19

Relief for agricultural land and farm houses

Question 20

Who decides whether the relief is applicable?

Answer 20

HMRC have the ultimate responsibility for deciding the extent of the estate and whether or not a particular estate satisfies the requirements for relief.

The role of the VOA is to provide informed professional advice on what qualifies as agricultural property and any consequential valuations.

Question 21

What section covers IHT reliefs?

Answer 21

Relief provisions are contained in SS115-124 IHTA 1984