Capital Taxation Flashcards
What is the statutory basis of inheritance tax
The inheritance Tax act 1984
Where is the definition of market value for inheritance tax
Section 160 of The inheritance Tax act 1984
Where is the definition of market value for Capital gains tax
Section 272 of The Taxation of Chargeable Gains Act 1992
What is the basis of value for Inheritance Tax and Capital Gains tax
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
How does the basis of value for CGT and IHT differ than market value
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
What is the standard tax rate for Inheritance Tax
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%
What is the case law relating to special purchaser
IRC Vs Clay
This was expanded in Walton v IRC in that special purchasers have to be real not hypothetical.
What is the statutory basis for SDLT?
The Finance Act 2003
What did the Duke of Buccleuch case set out?
That large estates should be ‘prudently lot’ to achieve the best possible price for the property.
What did the Lady Fox case set out?
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.
What is Inheritance Tax?
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.
What is the date of Valuation for IHT
The moment just before death
ensures interests that terminate on death are treated as part of the estate.
What is the inheritance tax threshold
£325,000
What is the nil rate band?
The value of an estate that is not subject to IHT (£325,000). This is on an individual basis
Can the nil rate band be transferred
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.
What reliefs are available for IHT?
- 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.
What are the IHT exemptions
- 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.
What are PETs?
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.
What is agricultural relief
Relief for agricultural land and farm houses
Who decides whether the relief is applicable?
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.
What section covers IHT reliefs?
Relief provisions are contained in SS115-124 IHTA 1984
Tell me about Wight and Moss v CIR (264 EG 935) 1982 case (Nellie Wight)
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
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)
What law related to undivided shares for valuations before 1997?
Law of Property Act 1925
