TAX NEWS - 2010

UK Tax: Capital Gains Tax calculation

My questions are in preparation for a capital Gains Tax calculation.

The asset is a ¼ share in river fishing rights (the fishing) previously held in a trust but now transferred out to the beneficiary (deemed a disposal in the UK).

The fishing was settled into the trust by transfer (Father to Son) in July 1995 and transferred out of the trust, to the beneficiary, in December 2009. The trust was then closed down. As the settlement was by gift so no money changed hands and therefore no monetary value of the asset was considered or recorded.

The value of the asset on disposal date has increased over its value as at the settlement date. Therefore the trust has incurred a Taxable Capital Gain Charge.

The exercise firstly is to calculate the value of the asset at the relevant dates i.e. date of settlement (July1995) and date of disposal (December2009). With this information I can then later calculate the tax payable on the gain.

To calculate the value of the asset at relevant dates:-

I do not have the value of the asset, as at July 1995, however, prior to 1990 the fishery comprised 5 shareholders; 2 shareholders owned ¼ share each and 3 shareholders owned 1/6 share each. In February 1990 a 1/6 shareholder died and the value of his share was agreed by the Inland Revenue for probate at £18000.

On this basis it is logical to value a ¼ share at February 1990 as £18000 x 6/4 = £27000

However, I require a value of the ¼ share as at the date of settlement i.e. 5 years hence at July 1995

so


Question 1.

Accepting that the value of the asset has increased over the 5 years, would it be equally logical to establish the value at July 1995 by relating the dates to the corresponding RPI factors (indices?) on those dates and 'indexing up' from the known value on February 1990 to an interpolated value at July 1995. For example, if the RPI factor has increased by (say) 30% over the 5 years would it be logical to say that the market value has also increased by 30% over that period?

Otherwise, using the RPI Index, would you please recommend what method or formula of indexation should be used to achieve the required unknown values?

For information:- RPI February 1990 = 120, RPI July 1995 = 150, RPI December 2009 = 218


Question 2

If we are successful in calculating the value at July 1995(settlement date), could the same method or formula be used to establish the unknown value at December 2009 (disposal date). However, in this case, in order to achieve a closer relation of asset values, we would use the Halifax House Price index. Again, if not, what method or formula would you recommend?

For information:- Halifax House Price Index for July 1995=197.3

and December 2009 = 546.2

In a 'nut shell', we know the value of the asset at February 1990 so by the application of various price indexes (or any other arithmetical method) what is the value of the asset projected to July 1995 and December 2009?


Answer: Fengirl is correct. The only acceptable method of valuation would be to use a professional valuer.

In any case, I am not sure of your logic in using one index to calculate the growth from 1990 to 1995, and another one to calculate that growth from 1995 to 2009.

But why was there no valuation in 1995? Was the transfer into the trust not a chargeable transfer? In which case the deemed value of the transfer would have been the market value at that date. It may be that the gain was "rolled over", in which case the chargeable gain now may be based on the original acquistion by the father, and not on the transfer into the trust.

Either way, the values seem high, so it is probably best to speak to an accountant.


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Answer: No, I dont think the RPI is appropriate to calculte the Jult 95 value – fishing rights are not exactly the same as bread. Likewise for Dec 09.

The value needs to be obtained from a professional surveyor. HMRC would challenge any other method – and it wouldnt cost them anything to have the VO make a valuation.