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Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, highlights points on CGT negligible value claims and the IHT spouse exemption.

1. Form CG34 – Post-Transaction Valuation Checks and Negligible Value Claims

Context

HMRC offer a free valuation service to help taxpayers complete the CGT details of their tax returns. The taxpayer can ask HMRC to check valuations after he has made a disposal of a chargeable asset but before he files the return. The taxpayer can use this service by completing form CG34.

The effect of a negligible value claim

Where an asset has become of negligible value the owner may claim to be treated as though it had been sold and immediately reacquired for the amount specified in the claim (TCGA 1992 s24(2)). Where the asset is treated as having been sold, the owner may then calculate the capital loss arising from that deemed sale and give HMRC notice for it to be an allowable capital loss.

Recent revisions made to the Capital Gains Manual at CG13130, 13131 and 16601, and to be made to form CG34, make it clear that the post-transaction valuation service may be used for an asset which is the subject of a negligible value claim. Form CG34 cannot precede the negligible value claim for an asset. HMRC will, however, accept that a post-transaction valuation check is made after the negligible value claim is made if form CG34 is submitted at the same time as the claim.

Application

It should be noted that any acceptance of the taxpayer’s value does not necessarily mean that, at that stage, HMRC accept that all the conditions for a negligible value claim are met or that any allowable loss arises.
(HMRC notice 1.2.06)

Comment

The confirmation from HMRC that form CG34 can be used where an asset has become as negligible value is obviously welcome, though note the caveats – and, in particular, the order in which the documents should be submitted.

2. Spouse Exemption: £55,000 Limitation for Non-UK Domiciled Transferees

Context

Where the donor spouse is UK domiciled but the donee spouse is not, the spouse exemption is restricted by IHTA 1984 s18(2) to £55,000.

Confirmation from Dawn Primarolo that the £55,000 threshold will not be increased

A letter by the Paymaster General to Scottish Life International (SLI) confirms that the threshold will not be raised. The letter says:

‘the purpose of this restriction, which dates back to 1975, is to safeguard the Exchequer from loss of tax through UK capital, which has been transferred with the benefit of an IHT exemption, being taken abroad. It also prevents the use of a non UK domiciled spouse as an intermediary for the transfer by a UK domiciliary of foreign assets to a third party … Generally, increasing the £55,000 figure itself would undermine the anti-avoidance mentioned and could be seen as running counter to our commitment to tackling avoidance and encouraging a fairer tax system.’

Comment

However, as pointed out by SLI, inflation has risen by 150% since the introduction of the threshold in 1975. [And what about EU Treaty principles?]

(STEP Domestic News Digest 10.3.06)

Matthew Hutton MA, CTA (fellow), AIIT, TEP
March 2006

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.

THE FIFTH ESTATE PLANNING CONFERENCE: CURRENT ISSUES 2006

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