欢迎来到留学生英语论文网

当前位置:首页 > 论文范文 > Estate Management

Estate Management Essays - Tax On Property

发布时间:2018-02-14
该论文是我们的学员投稿,并非我们专家级的写作水平!如果你有论文作业写作指导需求请联系我们的客服人员

Capital Gains Tax On Property.

In order to give a logical reply to the connudrum set the following indepth analysis must be conducted. The first point for analysis is the introduction of and the history which surrounds capital gains tax. On the conclusion of this analysis there will be a complete and indepth considertaion of all the capital gains tax legislation in the United Kingdom. As the indepth analysis of these important points is conducted careful attention will also be paid to the effect of capital gains tax on any disposals of interests in landed property. The study will be duly decorated with as many examples of the effect of capital gains tax on any disposals of interests in landed property.

In order for this study to proceed correctly an analysis of the history and the introduction of capital gains tax must be undertaken.

The United Kingdom had no system for the taxation of capital gains prior to 1962. In 1955 the Royal Commission on the Taxation of Profits and Income was split by the question of whether or not capital gains should be taxed. The majority of the members of the Commission rejected the idea that a tax on capital gains could not be a tax of a simple one that would be free of problems. The minority, however, were of the opinion that the exemption from tax for capital gains represented the most serious omission in the United Kingdom’s tax system.

A universal capital gains tax was introduced by the Labour government in the Finance Act in 1965. This tax was levied without reference to the length of time that the asset had been owned and was designed to be quite distinct from income tax. Capital gains tax, therefore, applied to all gains that accrued on the disposal of any assets affter 6th April 1965. Any assets held on 6th April had the charge restricted to the gain referable to the period from that date to the date of the disposal of the asset. This short-term gains tax continued to apply until 1971 when it was abolished. Under this new form of capital gains tax any capital gains that were accrued to individuals were taxed at a rate of 30%. Where individuals had a moderate income they would be taxed at a much lower rate. At this time there were a number of exemptions. These exemptions were provided for any individuals whose homes, savings certificates and other national svaings issues, chattels that were disposed of for £1, 000 or less and the proceeds of any life assurance policies. The word ‘disposal’ was given the meaning that it referred to sales of assets, gifts and any circumstance in which a capital sum, which could include another asset, which was received and which came directly from an asset.

In the 1970s inflation had become a major economic problem in the United Kingdom. The capital gains tax system that was in place made no such allowance for any inflationary gains that had accured. Thus this meant that taxpayers were not only paying tax on their real economic gain but they were also paying tax on their inflationary gain. As previously stated, the capital gains tax had been introduced by the Labour government of 1965 but the Conservatives, during successive governments since 1979, looked and sought ways and methods to reduce the impact of the tax through the introduction of exstensive tax reliefs. They also sought to remedy the taxing of any inflationary gain. In 1982 the Conservative government introduced an index-linking. This form of index-linking was drastically refined and altered in 1985. It was designed to give relief to all inflationary gains that had been made after March 1982. To cite an example, the index-linking works as follows. If someone buys a house in 1976 for £25, 000 and sells it for £52, 000 in 1996 that person would be able to discount from his total gain of £27, 000 and sum which will reflect the inflation which the househas been subject to from 1982 to 1996.. He will be liable to tax on any inflationary gains made before 1982. The Conservative government decided in 1988 to completely remove the charge on all gains, whether inflationary or real, accrued before March 1982. This significantly changes the calculations in the cited example. In the cited example the gain is now calculated by taking the market value of the house as of March 1982, which could be £39, 000, and deduct from the £52, 000 sale price of the house. The gain would now be £13, 000, the difference between £52, 000 and £39, 300, and this gain would attract a relief for the effects of inflation between March 1982 and 1996. Any gain that was made before March 1982 is no longer subject to a charge to tax and indexation relief or allowance is avalaible for all gains that have accrued after that date.

This index-linking is also known as ‘indexation allowance’. ‘Indexation allowance’ is defined as being the allowance which is used when calculating the gain on an asset which has been owned for any period between 31st March and 5th April 1998. The purpose of the indexation allowance is to remove inflationary gains from the capital gains tax calculation so that a smaller gain is charged to tax. The inflation is measured by reference to the retail prices index. The indexation allowance is calculated by applying to the initial and subsequent expenditure the percentage increase in the retail prices index from the date the expenditure was incurred to the date of disposal, or April 1998 if earlier. Tables published by the Inland Revenue express this information as an indexation factor for ease of calculation. The following example will now attempt to illustrate how the retail prices index is used in a capital gains calculation.

In this example a man buys a house for £65, 000 and he sells the house for £172, 000. From date on which the house was purchased the retail prices index has increased by 25% up to April 1998. This gives an index factor of 0.25. The man also spent £10, 000 on improvements and the retail prices index has increased by 10% since the date of the improvements. This index factor is 0.1. The man makes no other disposals in the tax year. The indexation allowance is worked out thus.

Initial expenditure: 0.25 x £65, 000 = £16, 250
Subsequent expenditure: 0.1 x £10, 000 = £ 1, 000

These two figures are added together to give a total of £17, 250. This figure must be subtracted from the gain before indexation to give a gain after indexation.

The ‘indexation allowance’ now no longer applies for assets, such as property, owned after April 1998. Instead there is a relief for property such as a private dwelling house which now applies.

Morse, Williams and Salter state that the law relating to capital gains tax was first consolidated by the Capital Gains Act 1979 and was further consolidated in 1992 by the Taxation of Chargeable Gains Act.

It is important to note that under the Taxation of Chargeable Gains Act 1992 all forms of property are assets for the purposes of the Act whether or not they are situated in the United Kingdom. This Act replaced the indexation allowance with taper relief but this only applies to business assets but it did also make provision for relief where a person has made a gain on the sale of a private dwelling house. This relief is provided for in sections 222 and 223. These sections provide as follows. Section 222 provides that the disposal of an individual’s principal private dwelling house, which includes grounds of up to 0.5 hectares is exempt from capital gains tax. Section 223 makes provision for the amount of relief that should be applied to the exemption provided for by section 222.

In order to qualify for this relief the seller must have occupied the dwelling house as his only or main residence throughout his period of ownership but ignoring any period of ownership prior to 31st March 1982. It is important to note that it will not be of any concern if the house has not been the only or main residence for all or part of the last 36 months of ownership. This exception takes into account the situation where the taxpayer has moved to a new house before he has been able to dispose of his old house. If an individual has more than one residence it is a question of fact which one constitutes his only or main residence. The taxpayer can determine this question by making an election within 2 years of acquiring a second property which will backdated for up to 3 years.

On a concluding note to this study, it would appear that since 1965 there have been a number of changes to the capital gains tax system which have benefitted those people making disposals of landed property as they now have an tax exemption that did not originally exist.

BIBLIOGRAPHY

1. Principles of Tax Law – 3rd Edition by Geoffrey Morse, David Williams and David Salter.
Published by Sweet & Maxwell in 1996.

2. Tolleys Property Taxes 1998-99 by R.M. Rees. Published by LexisNexis UK in 1998.

3. Lloyd’s Bank Tax Guide 2004/5 by Sara Williams & Jonquil Lowe. Published by Vitesse
Media in 2004.

4. Inland Revenue and Capital Gains Tax at www.inlandrevenue.co.uk.

5. Textbook on Revenue Law – 2nd Edition by Adrian Shipwright & Elizabeth Keeling.
Published by Blackstone Press Limited in 1998.

6. Revenue Law by Lord Templeman. Published by Old Bailey Press in 1997.

7. Pervasive and Core Topics by Keir Bamford, Sheila Bramley, Andrea Cartledge, Richard
Halberstadt, Lesley King, Anthony Morgan, Martin Norris and Sarah Pooley. Published by
Jordans in 2003.

上一篇:Investing in property shares 下一篇:Proposal for european real estate