Capital Taxation - Level 1 Flashcards
What is the legislation for IHT?
Inheritance Tax Act 1984
What is the definition of Market Value?
The estimate amount of which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, where proper marketing has taken place and where both party’s acted knowledgably, prudently and without compulsion
What is the difference between the Red books definition of market value and IHTA 1984 definition differ?
IHTA 1984 we consider special purchasers and flooding in the market
Which section of IHTA 1984 define market value?
Section 160
What is the IHT Rate?
40%
can be reduced to 36% if 10% is left to charity
What does Section 160 define Market value?
- The price that might reasonably be expected to fetch if sold on the 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 in the market)
- Difference between RED book definition and IHT definition is
o Flooding in the market
o Special purchasers
What is the basis of value for IHT?
Market Value
When is IHT rate payable?
6 months after transfer
When is the valuation date for IHT?
Immediately before the date of death
What are the IHT reliefs
- Loss on sale Relief
- Charity relief
- Business Relief
- Woodlands Relief
- Agricultural Relief
- Quick Succession Relief
What are the IHT exemptions?
- Potentially exempt transfers (PET)
- Gifts to charities
- Civil partners or spouses
- Annual exemptions up to £3,000
What is agricultural Relief?
Found in ss. 115-124B IHTA 1984 - at either 50% (for land and buildings) or 100% (if land owned by farmer who farmed themselves)
What is Loss of Sale Relief
Sale within 4 years of death, sale value can be substituted for retuned value
What is business relief?
100% of trading company - not investment company. 50% of Land/building used by company. Must own for 2 years
What is the IHT Nil Rate Band?
£325,000
What is the gifts to charity relief?
if 10% of estate value is left to charity, remainder pays 36% rate.
What is Potentially Exempt Transfers?
7 year rule. Taper Relief – first 3 years is no relief, 20%, 40%, 60%, 80% for remaining years
Lifetime Transfers and Potentially Exempt Transfers (PETs)
There is no lifetime charge to tax at the date of gifts on outright gifts between individuals – such transfers are known as potentially exempt transfers (PETs)
Years between death and gift % of full rate to be charged
0-3 100%
3-4 80%
4-5 60%
5-6 40%
6-7 20%
Tell me about VPGA 15?
UK VPGA 15 states that IHT valuations are based on a statutory definition of market value which may not be exactly the same as the definition in VPS 4 of the Red Book. This is because it is subject to interpretation by the upper tribunal
What are the case laws precedent for VPGA 15?
Duke of Beccleauch v IRC 1967
Ellesemere v IRC 1918
IRC v Grey 1994
What is the case law for Undivided Shares?
White and Moss v Commissions and Revenue
IHT - What are the assumptions or Market Value?
- The 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
- Preliminary arrangement
- Property is offered on open market by whichever method would achieve best price
- Adequate publicity
- Special purchaser (disregarded in Global Standards Definition)
What was White and Moss v Commissions and Revenue about?
- This case set precedence for how to value Undivided Shares
- There was an undivided share in a domestic property with two joint occupiers. The appellants contended for a valuation based on the income approach, enhanced to reflect the co-owners likely but the DV values based on vacant possession and deduct 10%
- The tribunal approved DVs approach but thought it should be increased to 15% to account for the fact that the co-owner is not in occupation but has clear right to occupy as their main residence.
- When the co-owner is not in occupation and no longer has a right to occupy no longer exists, apply a 10% reduction
What was the case law for 10% discount?
Cust v CIR 1917 – set precedence for 10%
- Half share in a house in Mayfair, agent argued for 10% discount on house and 20% on rural estate, decision held 5% for house and 10% for rural
What was the case law for 15% discount?
Wight and Moss v CIR 1982 - Set precedence for 15%
- Half shares, both co-owners with tight to occupy, held order for sale not highly likely, other co-owner hypothetical purchaser, and less likely that a hypothetical co-owner would not be able to force a sale because the current owner is old.
