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James APC > Capital Taxation (DVS) > Flashcards

Capital Taxation (DVS) Flashcards

1
Q

What is an estate?

A
  • The total value of the assets left behind upon death.
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2
Q

What is a transfer of value?

A
  • Any action or omission (usually a gift) which reduces the value of an estate.
  • It is calculated by reference to the loss to the estate, rather than the value of the transfer.
  • Exempt transfers include if IHT was never payable, PET and CLTs.
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3
Q

What is a PET?

A
  • Potentially Exempt Transfer
  • Section 3A
  • 7 year rule
  • Tapered relief - first three years is no relief, 20%, 40%, 60%, 80% for remaining years.
  • Gifts with a reservation of benefit still chargeable under IHT.
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4
Q

What is a CLT?

A
  • Chargeable Lifetime Transfer
  • A gift made during an individual’s lifetime which is immediately chargeable to IHT.
  • This does not mean that there will be IHT to be paid but it will need to be assessed to see of a charge will arise.
  • Example: gifts to relevant property trusts, gits to companies, gifts made by close companies.
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5
Q

What is the difference between a PET and a CLT?

A
  • PETs are lifetime gifts made directly to other individuals, which includes gifts to bare trusts. A similar lifetime gift made to most other types of trust is a CLT.
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6
Q

How are land and property valued for IHT purposes?

A
  • HMRC generally require an IHT valuation where an estate includes land and/or property.
  • This needs to comply with Section 160 of the IHT 1984 and UK VPGA 15.
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7
Q

What RICS guidance is there on capital taxation and valuation in the UK?

A
  • UK National Supplement of the Red Book
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8
Q

What section of the UK National Supplement relates to taxation?

A
  • UK VPGA 15 – Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Transactions and the Annual Tax on Enveloped Dwellings.
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9
Q

What does UK VPGA 15 say?

A
  • IHT valuations are based on a statutory definition of Market Value, which may not be exactly the same as the definition in VPS4 of the Global Red Book.
  • This is because it is subject to interpretation by the Upper Tribunal.
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10
Q

What is Market Value broadly defined as?

A
  • The price which a property might reasonably be expected to fetch if sold on 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.
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11
Q

What assumptions are made when arriving at Market Value for IHT?

A
  • Sale is hypothetical
  • Vendor is Hypothetical, prudent and willing
  • Purchaser is hypothetical, prudent and willing (unless special purchaser)
  • Vendor would divide property into whatever natural lots would achieve best overall price
  • All preliminary arrangements necessary for sale have been carried out at VD
  • Property is offered on open market by whichever method would achieve best price
  • Adequate publicity
    Should reflect the bid of any special purchaser in the market (disregarded in Global Standards definition)
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12
Q

What is a special purchaser?

A
  • Purchaser known to the market, stands to gain a benefit through the purchase of property and land therefore have a special interest in purchasing the property.
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13
Q

What is Prudent lotting?

A
  • Grouping of items for valuation in order to achieve the best price if sold on the open market.
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14
Q

What case law would you refer to for prudent lotting?

A
  • Duke of Buccleuch v Inland Revenue Commisioners 1966
  • Held that large estate could be subdivided into natural units for valuation purposes
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15
Q

When do you value for Inheritance Tax, what section IHTA 1984?

A
  • Section 4 of IHTA 1984, immediately before death
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16
Q

What is the threshold for IHT?

A
  • £325,000 – charged at 40% on asset value above this
  • May be 36% if 10% net value is left to charity.
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17
Q

When is payment due?

A
  • Normally due 6 months after the end of the month the death occurs.
  • Option to pay in 10 annual instalments for land & buildings, business property and certain shares & securities.
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18
Q

What exemptions are available for IHT?

A
  • Transfers between spouses or civil partners
  • Gifts to recognised UK charities
  • Gifts to UK political parties
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19
Q

What reliefs are there for IHT?

A
  • Business relief
  • Agricultural relief
  • Woodlands relief – defers IHT until timber is sold.
  • Taper relief – if donor dies before the 7 years expire after a non-exempt transfer.
  • Quick succession relief – where the deceased received assets on which IHT was paid within the previous 5 years.
20
Q

What statutory provision allows for inspection?

A
  • Paragraph 12A, Schedule 36 Finance Act 2008
21
Q

Do you always have to inspect for IHT?

A
  • No if…
  • HMRC instruct otherwise.
  • Sales particulars are sufficient.
  • Existing / recent VO records (i.e. CT or NDR purposes).
  • If an inspection has been dispended, must note why on valuation sheet.
22
Q

What is an undivided share?

A
  • Each co-owner has a specified (but not necessarily equal) share in the property, which he may dispose of separately from the others.
23
Q

What is the lead case regarding the valuation of undivided shares?

A
  • Wight v Moss.
  • Nellie Wight case – undivided share of dwelling to be valued following death of one of the joint owner-occupiers.
  • Appellants contended for a valuation based on the income approach enhanced slightly to reflect the co-owner’s likely bid.
  • DV valued on basis of the VP value, divided by two then deducting 10%.
  • Tribunal agreed DV approach but gave 15% deduction.
24
Q

What considerations do you make when assessing an asset with an undivided share?

A
  • Where other co-owner is not in occupation and purpose behind trust no longer exists – 10%
  • Where other co-owner is not in occupation but have clear right to occupy as main residence and purpose behind trust still exists – 15%
  • Where other co-owner is in occupation as their main residence – 15%
25
Q

What is a minority share?

A
  • Where the shareholder has a minority holding of typically less than 50%
26
Q

What case law for minority shares and IHT?

A
  • Charkham V CIR 1997
  • Valuation at 5 different dates of minority shares in two blocks of central London property
  • FH interest in two shops subject to leases with development potential
  • FH interest in four houses converted to flats – some sold off on long lease others subject to tenancies protected under the Rent Act 1977
  • Entirety valuations agreed prior to hearing.
  • DV submitted entirety approach
  • Appellant – income based approach
  • Decision – entirety approach so as not to double count
27
Q

What case law is relevant to a Special Purchaser?

A
  • IRC v Clay 1914
  • Parties agreed house was only worth £750 as dwelling house
  • next door to it was a nurses’ home, and it was conveyed on 29 September 1910 to the trustees of the nurses’ home for £1000.
  • The trustees had offered the owner £850 in 1908, which she had declined, and the 1910 price was as a result of bargaining.
  • Evidence to show that in fact the trustees would have been prepared to give £1100.
  • The High Court and Court of Appeal both rejected an argument that the interest of the trustees meant that the market price was only “one more bid” than £750 (say, £800), and they confirmed a valuation of £1000.
28
Q

What is the Crossman Principal as relates to IHT?

A
  • IRC vs Crossman, no restriction upon actual passing or transfer of the property comes into question. Basically, assume any special conditions have been met but when valuing how much a purchaser would pay any restrictions should be taken into account.
29
Q

Capital Gains Tax

Which Act defines Market Value for CGT purposes?

A
  • S272 Taxation of Chargeable Gains Act 1992.
30
Q

What is the main difference between the Red book definition of Market Value and that for Capital Tax purposes?

A
  • price property might reasonably be expected to fetch if sold on open market, but not reduced on the ground that the whole of the property is placed on market as one and at the same time (flooding of market).
31
Q

When is the deemed acquisition date for Capital Gains Tax?

A
  • When the contract is made or if conditional, when the conditions are met.
32
Q

What is the significance of 31 March 1982?

A
  • Date of valuation ‘re-basing valuation date’ – date of disposal. If bought before 31 March 1982, date of acquisition is assumed 31 March 1982 (statutory date).
33
Q

What is the annual personal allowance for CGT?

A
  • £12,300 22/23 £6,000 23/24
34
Q

Are there any reliefs for CGT?

A
  • Entrepreneur Relief – 10% for qualifying gains (business) up to a lifetime limit of £1 million. Must own business for 2 years and dispose of the asset within 3 years of closing business
  • Section 222, Private Residence Relief – 100% on dwelling house used as main residence - permitted garden area reduced to 0.5 hectares as ‘required for reasonable enjoyment’
  • Roll-over relief – available on qualifying business assets. Must reinvest in another qualifying asset within one year. Gain deducted from the acquisition costs of new asset
35
Q

Are you ever charged CGT on you Principal Private Residence?

A
  • Private Residence Relief – don’t pay on own home so long as you meet all of the 5 conditions.
    1. Lived in it as main home all the time you’ve owned it
    2. You don’t let part of it out
    3. You don’t use part of it exclusively for business use
    4. Total area of less than 5000m2
    5. Didn’t buy it just to make a gain
36
Q

What exemptions to CGT are there?

A

Exemptions:
* Gift to spouse or civil partner
* Gifts of up to £3,000 per annum
* Gifts to recognised UK charities
* Gifts in consideration of marriage - £5,000 from parents, £2,500 from grandparents

37
Q

What is hope value and is there any case law that you could quote to support your position in a Cap Tax case?

A
  • If there is any potential for development to be taken into account
38
Q

What is a permitted area?

A
  • s222 of Taxation of Chargeable Gains Act.
  • Legislation allows permitted area of up to 0.5ha (1.23 acres) of garden and grounds OR larger if required for reasonable enjoyment of it as a residence.
  • Explain case process; identify permitted area, what is reasonable in the locality, apportion sales price between permitted and non-permitted area.
39
Q

Is there any relevant case law you could refer to when considering apportionment?

A
  • Salts vs Battersby 1910
  • Case dealt with the method of apportioning rent
  • Correct approach was by value not area
  • Necessary to find the constituent values, consider marriage value.
    Open market value or sale price to be apportioned x constituent value of part sum of constituent values of all parts
40
Q

What can you tell me about Palliser v HMRC?

A
  • Reasonable valuer should take into consideration development potential when approaching valuation for capital taxation purposes if it is clear the property would received some form of benefit from development.
  • Maisonette in Hampstead valued at £1.4m in 2012
  • Sold in 2014 for 2.5m
  • HMRC issued notice of determination in 2016 revising share for probate to £1.8m
  • Appellant valuer did not include hope value as not within the Red Book.
  • Upper Tribunal decided on £1.6m and that hope value was established as 50% of the development value assuming planning permission was granted.
41
Q

What act deals with the confidentiality of taxpayer information as relates to our work?

A
  • Section 18 of CRCA 2005
42
Q

Stamp Duty Land Transactions

What is SDLT?

A
  • Stamp Duty Land Transaction
  • A tax on properties bought in Endland and Northern Ireland.
  • The rate you pay depends on the price you pay for the property and the reason for buying it.
43
Q

Which Act defines Market Value for SDLT purposes?

A
  • S118 Finance Act 2003
44
Q

What are the current rates for SDLT?

A

Residential property (September 2022 onwards):
* 0% on first £125,000
* 5% on £250,001 to £925,000
* 10% on £925,001 to £1,500,000
* 12% on balance above £1,500,001

First time buyer relief
* 0% up to £425,000
* 5% on £425,001 to £625,000
* If property over £625,000, no relief applies.

Additional 3% on top of normal SDLT for second property. Refunded if previous home sold within 36 months.

45
Q

What does ATED stand for?

A
  • Annual Tax on Enveloped Dwellings
46
Q

What is ATED?

A
  • an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

James APC (6 decks)

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