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DeanieB > Capital Taxation > Flashcards

Capital Taxation Flashcards

1
Q

What Legislation relates to Capital Taxation?

A

Taxation of Chargeable Gains 1992
Inheritance Tax Act 1984

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2
Q

What RICS guidance is there for Capital Taxation?

A

RICS Valuation – Global Standards 2017: UK National Supplement, January 2019
UK VPGA 15

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3
Q

What is the Market Value for Capital Taxation?

A

“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 property is to be placed on the market at one and the same time”

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4
Q

Where do I find the Market Value for IHT?

A

Section 160 of IHTA 1984.

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5
Q

Where do I find the Market Value for CGT?

A

Section 272 of TCGA 1992

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6
Q

Where do I find the Market Value for SDLT?

A

Section 118 of Finance Act 2003

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7
Q

What is the difference between CT Market Value and Red Book Market Value?

A

Open to interpretation by legislation and case law.
Special Purchaser is reflected.

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8
Q

Where can I find the Basis of Value?

A

UK VPGA 15

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9
Q

What are the assumptions for IHT Market Value?

A
  • The sale is hypothetical
  • The vendor is hypothetical, prudent and willing.
  • Purchase is hypothetical (unless special), prudent and willing.
  • For purposes of the hypothetical sale, the vendor would divide the property, to achieve 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 best price.
  • There is adequate publicity or advertisement before the sale takes place, so it is brought to the attention of all likely purchasers.
  • The valuation should reflect bid of any special purchaser in the market (provided they are willing and able to purchase)
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10
Q

What case law relates to the Hypothetical Sale?

A

Duke of Buccleuch v IRC 1966 – we are to envisage a hypothetical sale.

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11
Q

What case relates to Preliminary Arrangements?

A

Duke of Buccleuch v IRC 1966 - … in which all preliminary arrangements have been made prior to time of death…

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12
Q

What is the Duke of Buccleuch case?

A

Duke of Buccleuch v Inland Revenue and Customs 1966 – Relates to the sale of 10 estates, sold individually to ascertain the best possible price, to be lotted naturally, not to achieve highest price where sold lots would unlikely to be on the market as individual.

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13
Q

What case law relates to prudent lotting?

A

Duke of Buccleuch v IRC 1966, Lady Gray v IRC 1994 & Ellesmere v IRC 1918.

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14
Q

What is prudent lotting?

A

The act of lotting or separating property to achieve best price in the market.

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15
Q

What is the Lady Gray case?

A

Lady Gray v IRC 1994 – Items may be lotted or sold separately as a prudent hypothetical vendor would do in order to obtain best price.

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16
Q

What is the Ellesmere case?

A

Ellesmere v IRC 1918 – Executor sold one lot as a collection. Buyer then divided and resold properties for a much higher value.

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17
Q

What case law relates to Special Purchaser?

A

IRC v Clay 1914 – parties agreed a dwelling was only worth £750, however nursing home paid more as a special purchaser.

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18
Q

What is a special purchaser?

A

A special purchaser is one who has a particular interest in acquiring a property.

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19
Q

What act relates to IHT?

A

Inheritance Tax Act 1984

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20
Q

What does Section 4 of the IHT act tell us?

A

That we must value the property immediately before death.

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21
Q

When is IHT payable?

A

6 months after transfer.

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22
Q

What are the thresholds for IHT?

A

No Tax for value up to £325,000 (or £650,000 where transferable nil rate applies)

23
Q

What is the IHT tax rates?

A

40% of the value over the threshold.

24
Q

What is Transferable Nil Rate Band?

A

Remaining threshold is carried over if unused.

25
Q

What is Residence Nil Rate Band?

A

An extra £175,000 of tax-free allowance for properties passed to direct descendants.

26
Q

What exemptions are there for IHT?

A

Potentially Exempt Gifts up to 7 years prior.
Spouse or Civil Partner
Annual Tax Exemption up to £3,000.
Gifts registered to UK charities.

27
Q

What IHT relief is there?

A

Loss of Sale
Charity
Business
Agricultural

28
Q

What is Loss of Sale relief?

A

Where a property is sold within 4 years of death, sale value can substitute the returned value.

29
Q

What is Charity relief?

A

Where 10% of net value is left to charity, a tax rate of 36% is applied (instead of 40%).

30
Q

What is Business relief?

A

100% relief for trading company value (not investment property companies)
50% of land and buildings owned by a company (if owned for 2 years minimum)

31
Q

What is Agricultural relief?

A

100% relief is land owned by farmer who farmed themselves
50% for land and buildings.

32
Q

What is an undivided share?

A

Where a property ownership is shared between 2 or more people.

33
Q

What is the difference between tenancy in common and joint tenancy?

A

Joint Tenancy have equal ownership (50/50) whereas tenancy in common have differing share interests (25/75).

34
Q

What case law relates to undivided shares?

A

Cust v CIR 1917, Wight & Moss v CIR 1982 & St Clair Ford, RE Normal Peter Youlden v HMRC 2006

35
Q

What is the Cust v CIR case?

A

Cust v CIR 1917 – 10% applied to reflect lack of control, no occupation though.

36
Q

What is the Wight v Moss case?

A

Nellie Wight v Moss 1982 - 15% reasonable where co-owner is within occupation.

37
Q

What is the St Clair Ford Case?

A

St Clair Ford, RE Norman Peter Youlden v HMRC 2006 – 10% held customary where co-owner is unlikely to occupy.

38
Q

How do we reflect undivided shares?

A

Divide by share percentage.
Less 10% where no chance of occupation
15% where co-owner could occupy
15% where co-owner does occupy.

39
Q

What is the CGT act?

A

Taxation of Chargeable Gains Act 1992

40
Q

What is the CGT rate of tax?

A

Non Resi: 10% or 20% (higher rate taxpayer)
Resi: 18% or 24% (higher rate taxpayer)
Companies: 25% (19% small profits rate)

41
Q

What tax free allowance is there?

A

£3,000 per tax year or £1,500 for trust.

42
Q

When do you pay CGT?

A

Personal Possessions worth over £6,000 (excluding vehicles)
Second Homes and Homes that are let out.
Shares not in an ISA or PEP
Business Assets

43
Q

Exemptions of CGT?

A

Main Home
Passed to Spouse or Civil Partner
Private Motors
Gifts to Charities
Prizes and Winnings
Cash
Assets in an ISA or PEP
Foreign Currency for personal use.
Gifts up to £3,000 per annum.
Gifts for marriage (£5,000 from parents & £2,500 from grandparents).

44
Q

What is SDLT?

A

Stamp Duty Land Tax – Tax payable when you purchase property or land.

45
Q

What legislation relates to SDLT?

A

Finance Act 2003

46
Q

What are the SDLT rates?

A

Under £250,000 = 0%
£250,001 to £925,000 = 5%
£925,000 to £1.5million = 10%
£1.5million and over = 12%
+3% for second homes.

47
Q

What relief is there for SDLTs?

A

First Home Relief.
Up to £425,000 = 0%
£425,000 to £625,000 = 5%
£625,001 upwards = No relief.

48
Q

What are the non-domestic SDLT rates?

A

Up to £150,000 = 0%
£150,001 to £250,000 = 2%
£250,001 over = 5%

49
Q

What is ATED?

A

Annual Tax of Enveloped Dwellings – Annual Charge for companies which own UK residential property, valued over £500,000

50
Q

What is PRR in CGT?

A

Private Residence Relief – Full relief is main home for duration of ownership and size of grounds is below 0.5ha (or more if required for reasonable enjoyment).

51
Q

Factors to consider in an IHT valuation?

A

Condition
Tenanted
On the Market
Large Garden
Improvements since death
Special Purchasors
Undivided Share
Valuer Report
Rent Payable
Price if sold
Planning Permission

52
Q

How many beds required to be a HMO?

A

3 – if not same household.

53
Q

What is probate?

A

The administering of a deceased persons estate.

54
Q

Case law relating to PRR?

A

Longson v Baker 2001 – Taxpayer requested equestrian land of 1ha to be included in PRR due to enjoyment’, refused due to not being essential to the main property.

DeanieB (10 decks)

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