Capital Taxation Flashcards

Question

What if they held a minority share?

Answer 1

Minority shares - up to 20% if: Not worthwhile for a potential purchaser to seek a court order for the sale. Evidence the majority of share owners would oppose an application for an order of sale. More than 20% in exceptional case - with prior approval.

Answer 2

Walton v IRC (1994) - Can't be assumed that landlord would be in market. Co-owners are not hypothetical - matter off act they would have been in market or not.

Answer 3

Depends on terms but generally Will decrease property value

Answer 4

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

Answer 5

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

Answer 6

Law of Property Act 1925

Answer 7

Work out the difference between what was paid for the property and the amount received when sold. If the gains are over the yearly allowance then tax is due. You bought a house for £200,000 and sold it for £250,000. You would have a gain of £50,000

Answer 8

Assets you pay capital gains tax on when you sell.

Answer 9

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, used for exclusive business purposes or its larger than 5,000 sqm. Any shares not in an ISA or Personal equity plan (PEP). Business assets.

Answer 10

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

Answer 11

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 - this does not include having a lodger. You have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use). The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total. You did not buy it just to make a gain. If all these apply you will automatically get a tax relief called Private Residence Relief and will have no tax to pay. If any of them apply, you may have some tax to pay.

Answer 12

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

Answer 13

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

Answer 14

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.

Answer 15

UK VPGA 15

Answer 16

a Residence nil rate band of £175,000 was introduced due to rising property prices. More and more people have been pulled into inheritance tax in recent years. The property allowance was introduced to help people leave property to family without being hit with large tax bills. Crucially, you only qualify for this new allowance if your estate includes a property that you’ve used as a home at some point in your life.

Answer 17

If you give away your home but continue to live in it rent-free until your death, you’ll be deemed to be the beneficial owner, and it will still be taxed as part of your estate when you pass away. If you give away a home within your lifetime, it will be classed as a potentially exempt transfer, meaning inheritance tax may be charged if you die within seven years of making the gift. If the gifts are worth less than the £325,000 allowance, they’ll be added to your estate to work out your taxable estate. If they’re worth more, then they will use up your tax-free allowance, and you’ll be charged a tapered rate on the excess, which depends on how long you live after making the gift. 0 - 3 years = 40% 3 - 4 years = 32% 4 - 5 years = 24% 5 - 6 years = 16% 6 - 7 years = 8% More than 7 = 0% If you live for at least seven years after making the gift then no tax will be due – and your £325,000 tax-free allowance will not be affected.

Answer 18

Private Residence Relief Lived in whole ownership Not let any part out Roll over relief Entrepreneurs relief

Answer 19

£3000 for individuals £1500 for trusts Since April 2024 Companies pay corp tax on gains!

Answer 20

Property is left to you in a will. Property is transferred because of divorce or dissolution of a civil partnership

Answer 21

0-£125,000 - 0% £125,001 - £250,000 - 2% £250,001 - £925,000 - 5% £925,001-£1,500,000 - 10% £1,500,000 + - 12%

Answer 22

0-£250,000 – 0% £250,001-£925,000 -5% £925,001-£1.5m – 10% Above £1.5m -12%

Answer 23

Current 0 -£425,000 - 0% £425,001 - £625,000 - 5% 01-Apr-2025 0 - £300,000 - 0% £300,001 - £500,000 - 5%

Answer 24

Commercial rate aligned with residential rate in October 2024: 18% and 24%

Answer 25

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. If you don’t survive the gift by seven years, the PET becomes a Chargeable Consideration, and is added to the value of your estate for IHT

Answer 26

From April 2026, 100% relief from IHT restricted to first £1 million. Above this, landowners access 50% relief (40% effectively becomes 20%).

Answer 27

Business Property Relief (BPR) provides relief from Inheritance Tax (IHT) on the transfer of relevant business assets at a rate of 50% or 100%. Operated business themselves You can only get relief if the deceased owned the business or asset for at least 2 years before they died.

Answer 28

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

Answer 29

The dividing or grouping of property and land into parcels in order to achieve the best value. DOB v IRC (1967) Best value attainable - Ellesmere (1918)

Answer 30

£1,000,000. £325,000 can be passed and added to partners £325,000 equalling £650,000 Partner can then pass down £175,000 relief for being a direct descendant of a main residence.

Answer 31

The extra value attainable for the prospect of achieving planning permission. Palliser v HMRC 2018 - Appellant disputed the valuation determined by HMRC. Principal matter was correct interpretation of the s.160 IHT Act 1984, and whether market value should consider 'hope value'. Upper Tribunal dismissed and set out potential for improvement must be considered in the valuation.

Answer 32

Roll over relief Business Asset Disposal Relief

Answer 33

* The sale is hypothetical. * The vendor is hypothetical, prudent and willing. * Purchase is hypothetical (unless special), prudent and willing. * For purposes of the hypothetical sale, the vendor would divide the property, to achieve best overall price. * All preliminary arrangements necessary for the sale to take place, have been carried out prior to the valuation date. * The property is offered for sale on the open market by whichever method of sale will achieve best price. * There is adequate publicity or advertisement before the sale takes place, so it is brought to the attention of all likely purchasers. * The valuation should reflect bid of any special purchaser in the market (provided they are willing and able to purchase).

Answer 34

Purpose I was instructed to inspect a three-bedroom terraced residential property in Ravenscourt Park for IHT purposes. A valuation report had been provided, stating the property was in poor condition and required modernization throughout. Action During my inspection, I identified damp issues and noted surface cracks, though I did not consider them structural. I adopted the comparable method of valuation, compiling and verifying transactions of similar properties in poor condition near the valuation date. I sourced data from internal databases, external sources, and Essential Information Group (EIG) for auction transactions. Result: Based on my analysis, I concluded that the returned IHT value was not acceptable. I presented my findings to a senior surveyor, who concurred with my assessment. Outcome: I advised my client accordingly and engaged in negotiations with the executor, leading to an agreed uplift in valuation. After reporting the outcome to my client, I successfully closed the case.

Answer 35

Purpose I was tasked with valuing a three-storey, six-bedroom semi-detached property in Forest Hill for IHT purposes. Action Following a desk review using the comparable method, I determined that the returned value appeared low. I conducted an inspection, measuring the property to Gross Internal Area (GIA), noting key valuation factors, and creating a floor plan. Upon further analysis, I placed the most evidential weight on a nearby six-bedroom property that had sold six months prior, adjusting for market changes using the Land Registry House Price Index (HPI). Result My analysis confirmed that the returned value was too low, and a Registered Valuer agreed with my assessment. Outcome I explained my findings to the executor and engaged in negotiations with their valuer, highlighting that their evidence was based on asking prices rather than sales data. As a result, a revised value was agreed upon.

Answer 36

Akanwo v Revenue and Customs (2018) LT Set out that it was appropriate to apply a 5% reduction to reflect the Assured Shorthold Tenancy that was in place.

Answer 37

Chifley Holdings Ltd v HMRC (2024) Can take into account post VD evidence, but only to establish market trends

Answer 38

I was instructed to value a five-bedroom terraced property in Wandsworth for IHT purposes. The property was being used as a House of Multiple Occupancy (HMO) and was fully tenanted under Assured Shorthold Tenancies. Action Considering prudent lotting, I conducted two valuations—one as an HMO using the investment method and another as a family home using the comparable method. I reviewed the leases to determine the gross rent minus maintenance costs and analysed comparable rental evidence from external sources to confirm market-level rent. Using this data, I established the yield and applied Parry’s Calculator to determine market value based on the income approach. I then utilized the comparable method to assess similar properties in the area, adjusting and weighting the evidence accordingly to establish a gross market value. I reduced this by 5% to reflect the lack of vacant possession and made further deductions to account for conversion costs from an HMO. Result I advised a Registered Valuer that the highest achievable value was as a single dwelling, and they agreed with my assessment. Outcome I informed the agent that their returned value was low and successfully negotiated a revised valuation. I then advised both my client and HMRC of the updated valuation.

Answer 39

House of Multiple Occupancy At least three tenants live there, forming more than one household Facilities such as a toilet, bathroom, or kitchen are shared with other tenants. UK VPGA 13 - Buy to let RICS Professional Standard of Buy-to-let and HMO properties (2022) Managers and HMOS bound by The Management of House in Multiple Occupation (England) Regulations 2006

Answer 40

It has five or more occupiers comprising two or more separate households, regardless of number of storeys. It is a house or self-contained flat but is not a purpose-built flat situated in a block comprising three or more self-contained flats. Some or all of the occupants share amenities such as bathrooms, toilets or cooking facilities At least one of the occupants pays rent, or the accommodation is linked to their employment. It is the occupiers' main residence

Answer 41

Min temperature of 21* achievable in occupancy room. 2 bathrooms and 2 WCS if 6 plus tenants. Minimum living room of 11m2 for every 5 people 6.51m2 plus bedroom.