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
Section 118 for definition of market value
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?
Commissioner for IR V Duke of Buccleuch (1967)
10 estates
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?
Commissioner for IR V Gray (Lady Fox) 1994
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?
Commissioner for IR V Clay 1914
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 and CGT found?
Section 160 IHT Act 1984
Section 272 of TCGA 1992
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. section 4 of IHT Act 1984
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 residence nil rate band 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.
