Taxation Law: Inheritance Tax, Capital Gains Tax, and Business Asset Disposal Relief

TAXATION LAW

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
QUESTION 2..................................................................................................................................1
a) Income surplus to grandson for living expenses.....................................................................1
b) Sale of painting to friend Peter for £2000 at market value of painting. Actual market value
£25000.........................................................................................................................................1
c) Importance of differentiating between potentially exempt transfer and chargeable lifetime
transfer.........................................................................................................................................2
d) Reasons for availability of nil tax rate available to Roses after death of Nigel for IHT.........2
QUESTION 3..................................................................................................................................3
a) Business Asset Disposal Relief...............................................................................................3
b) Capital Gain on acquisition of business by Rake plc..............................................................4
c) Availability of the Business Asset Disposal Relief in the business Assets.............................5
REFERENCES................................................................................................................................6

QUESTION 2
a) Income surplus to grandson for living expenses
As per inheritance tax law if child is at full time education, the parents or grandparents
could pay for the tuition fees, rent and the maintenance without having the implications of the
inheritance tax. Parents cover rent by making payment directly to agency or landlord by the
direct debit or the standing order. Parents could transfer funds to account of child for the general
living expenses at monthly basis. There is no limit for the maintenance money, it requires to be
considered that a reasonable sum for covering things like bills, food and the spending money.
Giving excessive sum could attract HMRC deeming to be gift element situated in it which could
have inheritance tax implications.
As per the inheritance law everyone are allowed to give £3000 every year whoever they
like without having any tax implication. It is known as the Potentially Exempt Transfers.
Grandparents could give £3000 tax free every year free of IHT. A specific provision for
grandparents is giving of the surplus income (Budak and James, 2018). If grandparents have
surplus income of their requirements for instance they having monthly income of 5000 and
spends only 3000 they could give the balance of 2000 free of IHT.
As per this provision Grace could make monthly payments for the living expenses for
grandson for living expenses with IHT implications.
b) Sale of painting to friend Peter for £2000 at market value of painting. Actual market value
£25000
In the present case Grace has sold the painting to friend for £2000 however on valuation
it was recognised and valued to be of 25000. Grace has not made any gain on the art work or has
not sold for the benefit of buyer.
IHT rules for gifting are designed for permitting forward planning and for promoting the
charitable giving without excessive called death bed actions. The assets including art works are
included in value of the estate for IHT calculations and are potentially subject to the 40% tax
charges. Not only the IHT has to be considered as there may be other implications too associated
with any event or transaction carried out by the individual (Master, 2020). Lifetime gift of the
art work or asset creates charge to capital gain tax also if gift is made up to 28%. It is however
better than IGT tax rate.
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