Capital Taxation (DVS)

Question 1

Walton v CIR (1995)

Answer 1

What is to be valued is the particular interest the transferor has and not the whole property.

Question 2

What does the hypothetical vendor of an undivided share in land have to offer?

Answer 2

• a right to receive the appropriate portion of the net income pending sale of the land.
• at some future date, the appropriate share of the net proceeds of sale.
• a right to occupy unlet property jointly with other co-owners.

Question 3

What is the TLATA 1996?

Answer 3

Trusts of Land and Appointment of Trustees Act 1996

Question 4

Under what legislation would an order for sale be applied for?

Answer 4

Section 30 of the Law of Property Act 1925.

Question 5

In what cases is an order for sale less than “highly likely” to be granted?

Answer 5

• where it would involve displacing a co-owner entitled to occupy the property as their main residence.
• where the purpose of the trust for sale has not been fulfilled and is still capable of being fulfilled.

Question 6

What changes to taxation did The Finance Act 2022 (published 2 February 2022) introduce?

Answer 6

The Act announced updates in respect of the Residential Property Developer Tax (RPDT) levied on the profits of large companies, which only applies where a developer has or had an interest in land and applies from 1 April 2022.
RPDT is charged:
1. at a rate of 4%
2. on profits that arise from residential property development and exceed the annual allowance
3. where the annual allowance is £25 million (pro-rata for short accounting periods)
4. and companies must be subject to UK Corporation Tax.

Question 7

What is ATED?

Answer 7

Annual Tax on Enveloped Dwellings
- an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

Question 8

Where is the definition of the basis of value for CGT found?

Answer 8

Section 272, Taxation of Chargeable Gains Act 1992
https://www.legislation.gov.uk/ukpga/1992/12/contents

Question 9

Where is the definition of the basis of value for IHT found?

Answer 9

Section 160, Inheritance Tax Act 1984
https://www.legislation.gov.uk/ukpga/1984/51/contents

Question 10

Where is the definition of the basis of value for SDLT found?

Answer 10

Section 118, Finance Act 2003
https://www.legislation.gov.uk/ukpga/2003/14/contents

Question 11

Where is the definition of the basis of value for ATED found?

Answer 11

Section 98(8) of the Finance Act 2013
https://www.legislation.gov.uk/ukpga/2013/29/contents

Question 12

What is the definition of market value for IHT, CGT etc.?

Answer 12

“The price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time.”

Question 13

What are the assumptions for IHT, CGT etc.?

Answer 13

Case law has established that, in arriving at market value, the following assumptions must be made:
- the sale is a hypothetical sale.
- the vendor is a hypothetical, prudent and willing party to the transaction.
- the purchaser is a hypothetical, prudent and willing party to the transaction (unless considered a special purchaser).
- for the purposes of the hypothetical sale, the vendor would divide the property, i.e. asset to be valued into whatever natural lots would achieve the 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 the best price.
- there is adequate publicity or advertisement before the sale takes place so that it is brought to the attention of all likely purchasers.
- the valuation should reflect the bid of any special purchaser in the market (provided that purchaser is willing and able to purchase).

Question 14

What rights does the Rent Act 1977 afford individuals with regulated tenancies?

Answer 14

• security of tenure.
• rights to succession.
• allows application for a fair rent to be registered.

Question 15

Which Act created ASTs?

Answer 15

Housing Act 1988

Question 16

Charkham v CIR [1997]

Answer 16

• minority shares.
• confirmed that little distinction in discount should be made between sizes of minority shareholdings.

Question 17

HSBC Trust Company (UK) Ltd (As executor of the estate of Gwendoline Maisie Farmbrough) v HMRC (“The Farmbrough case”)

Answer 17

When valuing a minority share a larger discount than 10% may be appropriate in cases where:
- it is felt unlikely that a potential purchaser would seek an order for sale;
- it is felt that there is potential for dispute concerning how the property is managed.

The discount should not normally exceed 20%

Question 18

When would a 15% discount for an undivided share apply?

Answer 18

• Where at the valuation date any co-owner remains in occupation of the property, as their main residence (Wight and Moss v CIR).
• Where at the valuation date a co-owner has a right to occupy the property, as their main residence, but, by choice, did not actually occupy, it is necessary to consider the purpose behind the trust for sale or trust of land. If this purpose still exists and is capable of being fulfilled the discount would normally be 15% and in other cases 10%.

Question 19

How would you explain the IHT process/valuation to your client? (From a non-VOA perspective)

Answer 19

Inheritance Tax is a tax on the estate of someone who has died. The process involves the valuation of the person’s assets at their date of death in accordance with the market value definition under Inheritance Tax Act 1984.
Valuations for the estate are submitted to HMRC and can be reviewed by the DVS arm of the VOA.
The deceased person’s estate is liable at a typical tax rate of 40% on the value of the estate over the threshold.