Other news

News

Other news

Correction

Gremlins got into the statutory references for the disclosure of tax avoidance schemes last week (Taxation, 11 November 2004, page 143). They should, of course, have been to FA 2004, ss 306-319, with s 314 dealing with legal professional privilege.

Valuation problems

There are difficulties both of arriving at any valuation and one at any given date, said The Chartered Institute of Taxation and Institute of Chartered Accountants in England and Wales' Tax Faculty in their joint submission responding to the Revenue's further consultation on the taxation of pre-owned assets. The Revenue appeared to suppose that where a valuation is obtained then that figure is a fair one on which to levy taxation, and the professional bodies consider 'this is a total non-sequitur'. In their submission, they say that valuation is 'very much an art rather than a science' and that 'anyone of any experience of negotiating with the District Valuer or Inland Revenue Shares Valuation knows that even an agreed valuation is no more than a compromise between two highly subjective valuations'.

As to the valuation date, the submission states that 'considerable injustice would result from a charge that is based on a valuation (by its very nature an imprecise estimate) fixed on any arbitrary date. Not only is the market volatile for many chattels, but also income tax, as an annual tax, does not lend itself to such an approach'. The submission states that the 'only real value that can be placed on many assets is the price at which ownership changes hands'. Thus it should be open to the chargeable person to choose an alternative method of valuation, i.e. the actual cost price indexed in accordance with the general index of retail prices. The professional bodies recognise that the retail prices index 'is not an accurate indication of the fluctuations in value of any particular asset' but say that it is an objective figure and readily available.

The consultation also gave respondents the opportunity to comment on other related matters. The professional bodies first referred to multiple charges, saying that there should be a de minimis exemption along the lines of reservation of benefit to cover certain cases, and asking for clarification of the Revenue's view of the meaning of 'occupation' in the guidance note. Clarification was also requested of what happens if the donor of a property only occupies, or has the right to occupy, part of the original property gifted.

Secondly, with regard to transitional elections, the professional bodies could not see the necessity for the transitional election under paragraph 21 being made by 31 January 2007, which seems to be the effective return date under paragraph 23. In many cases, taxpayers (particularly the unrepresented) may not appreciate that they are within the pre-owned asset charge. The election should be available for a much longer period, i.e. five years and ten months from 5 April 2006, in the same way as for many other claims for losses or reliefs. Such election would have the dual effect of bringing the taxpayer into the gift with reservation régime as from the earlier year, and would consequently absolve the taxpayer in respect of the pre-owned assets tax and penalties for any reporting failure in respect of that earlier and subsequent years.

Finally, the professional bodies said they were aware of the concerns of many families where domestic arrangements are entered into, not for inheritance tax avoidance, but for family support and care. The main problem areas involve shared ownership such as granny annexes or just plain houses.

The professional bodies concluded their submission with a condemnation of the charge saying that it is:

The submission is available on the CIOT website: www.tax.org.uk or from the CIOT, tel: 020 7235 9381.

Issue: 3984 / Categories: