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Rafi > Capital Taxation - Level 1 > Flashcards

Capital Taxation - Level 1 Flashcards

1
Q

What is the legislation for IHT?

A

Inheritance Tax Act 1984

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2
Q

What is the definition of Market Value?

A

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

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3
Q

What is the difference between the Red books definition of market value and IHTA 1984 definition differ?

A

IHTA 1984 we consider special purchasers and flooding in the market

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4
Q

Which section of IHTA 1984 define market value?

A

Section 160

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4
Q

What is the IHT Rate?

A

40%

can be reduced to 36% if 10% is left to charity

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5
Q

What does Section 160 define Market value?

A
  • 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
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5
Q

What is the basis of value for IHT?

A

Market Value

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6
Q

When is IHT rate payable?

A

6 months after transfer

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7
Q

When is the valuation date for IHT?

A

Immediately before the date of death

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8
Q

What are the IHT reliefs

A
  • Loss on sale Relief
  • Charity relief
  • Business Relief
  • Woodlands Relief
  • Agricultural Relief
  • Quick Succession Relief
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9
Q

What are the IHT exemptions?

A
  • Potentially exempt transfers (PET)
  • Gifts to charities
  • Civil partners or spouses
  • Annual exemptions up to £3,000
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10
Q

What is agricultural Relief?

A

Found in ss. 115-124B IHTA 1984 - at either 50% (for land and buildings) or 100% (if land owned by farmer who farmed themselves)

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10
Q

What is Loss of Sale Relief

A

Sale within 4 years of death, sale value can be substituted for retuned value

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11
Q

What is business relief?

A

100% of trading company - not investment company. 50% of Land/building used by company. Must own for 2 years

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12
Q

What is the IHT Nil Rate Band?

A

£325,000

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12
Q

What is the gifts to charity relief?

A

if 10% of estate value is left to charity, remainder pays 36% rate.

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13
Q

What is Potentially Exempt Transfers?

A

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%

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14
Q

Tell me about VPGA 15?

A

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

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15
Q

What are the case laws precedent for VPGA 15?

A

Duke of Beccleauch v IRC 1967

Ellesemere v IRC 1918

IRC v Grey 1994

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16
Q

What is the case law for Undivided Shares?

A

White and Moss v Commissions and Revenue

16
Q

IHT - What are the assumptions or Market Value?

A
  • 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)
17
Q

What was White and Moss v Commissions and Revenue about?

A
  • 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
18
Q

What was the case law for 10% discount?

A

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

19
Q

What was the case law for 15% discount?

A

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.

20
Q

What is the case Law for Market Value?

A

IRC v Grey

21
Q

What is IRC v Grey

A
  • It was said that the property must be assumed to have been capable of sale in the open market, even if it was in fact inherently assignable or held subject to restrictions on sale
  • The relevant question is what a purchaser would have paid to enjoy whatever rights were attached to the property at the relevant date, assuming a hypothetical sale.
22
Q

What is Hope value?

A

Hope value is defined in the valuation of development property 1st edition 2019 and is the element of a market value attributable to future potential, such as planning permission or permitted development rights.

22
Q

What did Duke of Buccleuch v IRC 1967 state?

A

Held that the revenue had adopted a correct approach in dividing the total estate into 532 separate units for valuation purposes. Lotting in this way could only be rejected if there was evidence that it was unnatural or artificial

22
Q

What is the case law for Prudent Lotting?

A

Duke of Buccleuch v IRC 1967

Ellesmere v IRC 1918

23
Q

What did Ellesmere v IRC 1918 State?

A

Market price was a price based on the separate values of the various parts, and it was indicated that the price must be estimated on the basis that the properties were sold in whatever lots or lots, either one or more, that would realise the best price

24
Q

What is the case law for Hope Value?

A

Palliser v HMRC 2018

25
Q

What are the types of Undivided Shares?

A
  • Tenancy in Common - right to your bedroom and common area
  • Joint tenancy - rights to 100% of the space of the property but also have liabilities
26
Q

What was the Nellie Wight case?

A

Undivided share for 15% deduction

26
Q

What is the legislation for Capital Gains Tax

A

Taxation of chargeable Gains Act 1992

27
Q

When is capital gains tax chargeable?

A
28
Q

When is CGT Valuation date?

A
  • Date of Disposal
  • If property is bought before 31 March1982 the date acquisition is assumed to be 31 March 1982 (Statutory Date)
  • Anything after is date of disposal unless otherwise stated by the client
29
Q

What are the main reliefs for CGT?

A
  • Private residence relief
  • Hold over relief
  • Roll over relief
  • Business assets disposal relief
29
Q

CGT - What is the rare of tax for individuals?

A

Non Residential property - 10 or 20%
Residential property = 18 or 28%

30
Q

What is rebasing?

A

Rebasing is using the statutory valuation date for CGT of 31 March 1982 because of the extremely bad property market in 1982 you would assume the valuation is at 1982 because the gains were so large people couldn’t afford to sale.

31
Q

CGT - what is the rate of tax for companies?

A

25%

32
Q

What are the CGT exemptions?

A
  • Exempt persons and organisations
  • Exempt assets
  • Exempt transactions
33
Q

What is the statutory definition of Market Value for CGT?

A

The price at which assets might reasonbly be expected to fetch on the open market. In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the asset is to be placed on the market at one and the same time

34
Q

What is SDLT?

A

Paid on the purchase of property or land over a certain price. SDLT does not apply to Scotland or Wales.

34
Q

What does ATED stand for?

A

Annual Tax of Enveloped Dwelling

35
Q

What is ATED?

A
  • Is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000
  • It was brought in to plug hole SDLT avoidance. The transfer of an asset (residence) to an overseas company – NO SDLT. ATED catches this by charging this instead
36
Q

What is the legislation for ATED?

A

Finance Act 2013

37
Q

What does SDLT stand for?

A

Stamp Duty Land Tax

38
Q

What is the legislation for SDLT?

A

Finance Act 2003

39
Q

SDLT rates on a single property:

A

SDLT rates on a single property:
- Up to £125,000 – NOTHING
- £125,001-£250,000 – 2%
- £250,001-£925,000 – 5%
- £925,000-£1.5 Million – 10%
- Above £1.5 Million – 12%

Rafi (29 decks)

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