Capital Taxation Flashcards
What is the statutory basis for capital gains tax?
Taxation of Chargeable Gains Act 1992
What is the statutory basis for IHT?
Inheritance Tax Act 1984
What is the statutory basis for SDLT?
The Finance Act 2003
What is the basis of value for IHT and CGT?
Market Value
How does the basis for CGT and IHT differ from market value (Red Book)?
The main difference taken from the definitions is the idea that for IHT/CGT the value of the properties are not assumed to be reduced because the market has been flooded.
- special purchaser can also be considered for cap tax.
What did the Duke of Buccleuch case set out?
Large estates should be ‘prudently lot’ to achieve the best possible price for the property.
Prudently lot – sell individually or together. What would achieve the best price?
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.
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.
Court of appeal case on valuation of 3000 acre agricultural land in Cambridgeshire for capital transfer tax
EPR – As it existed, prudent seller and restrictions -ignore restrictions and sells on open market
What did the Clay case set out?
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
Nursing Home, wanted to buy the property next to the nursing home so they can expand
Where is the definition of market value for IHT found?
Section 160 IHT Act 1984
Is there RICS Guidance on Capital Taxation?
VPGA 15 – UK Red Book supplement 2023
Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, the Annual Tax on Enveloped Dwellings and Residential Property Developer Tax
Provides an overview of the statutory basis of market value for IHT CGT SDLT and ATED.
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?
The moment before death. This was designed to ensure interests that terminate on death are treated as part of the estate.
What is the IHT threshold?
£325,000
What is the tax rate?
40%
What is the nil rate band?
The value of an estate that is less than £325,000.
Can this be transferred? What is the max a married couple could leave tax free to a child?
Yes, your spouse or partner can inherit the nil rate band. The max a married couple could leave is £1,000,000.
What changes were introduced in 2017?
The relief started in April 2017 with £100,000 nil rate band per person and has increased by £25,000 every 6th April until it has reached £175,000, the maximum level.
This is in addition to the traditional nil rate band of £325,000.
For a couple, when passing assets down to their children, they can benefit from 2 x traditional nil rate band totalling £650,000 and 2 x residence nil rate band totalling £350,000, which equates to £1 million.
What reliefs are available?
Quick succession relief
Agricultural and Woodland relief
Business property relief
Taper relief
Fall in value relief
What is agricultural property relief and business property relief?
Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation.
Business property relief (BPR) is similar, but for business assets that are part of the estate.
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property.
What is woodland relief?
Woodlands may be eligible for certain tax reliefs and exemptions, depending on the type of woodland and its purpose.
Where Woodlands Relief is available, you can elect to exclude the value of the trees or underwood (but not the land itself) from the value of the estate. Inheritance Tax is instead paid when the trees are sold, given away, or otherwise disposed of.
What is taper relief?
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%
What are exempt?
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.
What are PETs?
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
First three years after death – 40% tax
Down 8% every year after up to 7 years
Can you use hindsight when undertaking valuations?
Viewed with the benefit of hindsight, comparable evidence can be much clearer than it would have appeared to a valuer at the date of valuation. The valuer valuing retrospectively needs to place themselves in the position of someone reviewing the available evidence on the valuation date, and then make a judgement on the extent and nature of the evidence that could reasonably be expected to have been available at the time.
What are the CGT thresholds?
Autumn budget increased the threshold from 30 October 2024
Lower rate from 10% to 18%
Higher rate from 20% to 24%
Commercial – 10% lower rate 20% higher rate
Residential – 18% lower rate 24% higher rate
What are the CGT reliefs?
Private residence relief
Roll over relief
Business Asset Disposal (Entrepreneurs) relief
What is the base date for CGT?
31st March 1982 – 1988 Finance Act
What is capital gains tax?
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.
How is this calculated? Talk me through the steps involved?
Establish disposal price – sale date
Establish acquisition price
Workout difference and if it is over the threshold
What is private residence relief?
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
In private practice how would you carry out a valuation for a 1982 CGT case?
Look at external sources such as EIG or the company’s own records.
What is the permitted area?
Less than 5,000m2 – CGT Act 1992
What is roll over relief?
When certain business assets are sold and the proceeds used to acquire a new business asset, roll-over relief may be available on any gain made on the disposal.
Where relief is claimed, the gain on the disposal is reduced from the consideration for the acquisition of the new asset.
The relief is only normally available if the replacement asset is purchased in the 12 month period preceding the disposal of the old asset or three years after
Threshold for individuals for CGT?
£3,000
£1,500 for trusts
The Annual Exempt Amount relates to IHT or CGT, what is it?
You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).
What are undivided shares?
Equal undivided part or share of land or property.
What are the two ways of owning a undivided share?
Joint tenancy
Tenants in common
What is a joint tenancy?
Joint tenant used mainly by married couples – equal share
What is a tenancy in common?
Tenancy in common used by friends, family and unmarried couples
Share isn’t always equal. Doesn’t automatically go to the tenants in common.
Which is the most common?
Joint tenancy
What if any adjustment would you give when valuing a share?
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.
What is the main share case law?
Nellie Wight case - Wight and Moss v CIR (264 EG 935)
James Anson St Clair-Ford
2006 Lands Tribunal case of James Anson St Clair-Ford (As executor of the estate of Norman Peter Youlden deceased) v HMRC
What are the SDLT thresholds for residential?
Currently:
£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
01 April 2025:
* £125,000 for residential properties
* £300,000 for first-time buyers buying a residential property worth £500,000 or less
* £150,000 for non-residential land and properties
SDLT Rates from 1 April 2025
Up to £125,000 - Zero
125,001 - 250,000 - 2%
250,001 - 925,000 - 5%
925,001 - 1.5 million - 10%
Portion above 1.5 million - 12%
What are the SDLT reliefs for residential?
First time buyer’s relief
Multiple dwelling relief
Charity relief
Right to buy properties
Councils making compulsory purchases
Charities buying for charitable purposes
SDLT exemptions
no money or other payment changes hands for a land or property transfer
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
you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential threshold or non-residential threshold of SDLT
you use alternative property financial arrangements, for example to comply with Sharia law, where the alternative financial provider pays SDLT when they buy the property under the arrangements
What is SDLT?
You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland
What if I had a second home?
You’ll usually have to pay 5% on top of SDLT rates if buying a new residential property means you’ll own more than one.
What are the SDLT thresholds for non-residential property?
Freehold sales and transfers:
Up to £150,000 -Zero
£150,001 - £250,000 - 2%
Above £250,000 - 5%
Leasehold sales and transfers:
Up to £150,000 -Zero
£150,001 - £5,000,000 - 1%
Above £5,000,000 - 2%
What is ATED?
Annual Tax on Enveloped Dwellings
What is the purpose of ATED?
ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.
When was it introduced?
Finance Act 2013
What is hope value?
Market value of the property with the expectation of getting planning permission for development
How would you reflect hope value?
What deductions would you make and how do you decided?
Lack of planning. Check case law
What information is required in determining hope value?
Planning, cost of acquiring the plot
How long would you need to pay IHT bill?
6 months from the end of the death month
What assumptions are there for the definition of market value for CGT and IHT?
- The assumption is that the value of properties isn’t affected with the market being flooded.
- It considers the role of a special purchaser
- The property may be divided to achieve the highest possible sale
- Hypothetical vendor and purchaser
- Property is placed for sale on the open market and there is suitable marketing
