Capital Taxation L3 IHTA

Question 1

What Act Covers Inheritance Tax?

Answer 1

Inheritance Tax Act 1984

Question 2

What is Inheritance Tax?

Answer 2

Inheritance Tax is a tax on the transfer of value of someones estate levied at the time of death

Question 3

What is the rate of tax for IHT? And what are the thresholds?

Answer 3

The rate of tax is 40%
The threshold are found in schedule 1
1) Nil Rate Band: £325K transferable to spouse or children
2) Residence Nil Rate Band: £175K transferable to spouse or children - tapered to every £2 over £2M - £1 is removed

Resident Nil Rate Band for houses under £2.35M

Question 4

What reliefs are there from IHT?

Answer 4

• Buiness Relief - 50% off land or buildings used by the company owned for 2 years
• Agricultral Relief - 100% if owner farms otherwise 50%
• Charity Relief - If 10% of estate left to charity the rest pays 36% rate
• Loss on Sale - If sold for less within 4 years of death

BACL

Question 5

What exemptions are there from IHT?

Answer 5

• Spouse or Civil Partner Exemption
• Potentially Exempt Transactions (PETs) - First 3 years 0% then 20% 40% 60% 80% 7th year 100%
• Annual Exemption of upto £3K
• Gifts to recognised charities

S P A G

Question 6

Where is the basis of value for IHT?

Answer 6

Inheritance Tax (IHT) in section 160, Inheritance Tax Act 1984

Question 7

What does UK VPGA 15 set out in terms of basis of value?

Answer 7

The property is offered for sale on the open market by whichever method of sale will achieve the best price
and the valuation is subject to interpretation by Caselaw

Question 8

What is the definition of Market Value for IHT and where is it found?

Answer 8

s.106 of the IHTA 1984 defines Market Value as the price property might reasonably be expected to fetch if sold on the open market disregarding flooding of the market
s.4 Immediatly before death

Question 9

What is the basis of value for IHT and how does this differ from VPS 4 of the Red Book?

Answer 9

1. The sale is hypothetical between a willing and prudent vendor and purchaser
2. It is reasoble to divide the estate into natural lots to achieve best price
3. Premliminary arrangments are assumed
4. Adequet marketing undertaken
5. Regard for a special purchaser
6. VPGA 15 state valuation can be subject to interpretation by case law

Question 10

L3 Residential - IHT - Undivided Share & Prudent Lotting

What case law did you consider when dealing with your Farndish case? Tell me about them?

Answer 10

I considered 2 cases mainly:
1) Duke of Buccleuch v IRC 1966 - 10th Duke of Devonshire - 20K acre divided inot around 530 natural lots to achieve best price
2) Wight v Moss 1983 - 2 elderly spinters regarding whether a co owner is in occupation or has a right to occupy the property then a 15% adjustment is made, if there is no right to occupy then there is a 10% adjustment made.

Question 11

L3 Residential - IHT - Undivided Share & Prudent Lotting

What is prudent lotting?

Answer 11

Subdividing an estate into natural lots as to achieve the best price on the market without exessive time or effort.

Question 12

L3 Residential - IHT - Undivided Share & Prudent Lotting

Why did you prudent lot the property?

Answer 12

For IHT I had to value under the statutory assumption that the value of any property shall be the best price which it might reasonably be expected to fetch if sold in the open market at the relevant time. The price obtainable for an estate may depend on how it is sold, i.e. whether it is sold in one or several lots

Question 13

What act provides valuers with statuotry powers for Inspections for Inheritance Tax, Capital Gains Tax, Corporation Tax in respects of Chargeable gains, Stamp Duty Land Tax, and Annual Tax on Enveloped Dwellings?

Answer 13

Schedule 36 of the Finance Act 2008