The Gazette 1991

GAZETTE DECEMBER 1991 Valuation for Capital Acquisitions Tax and Stamp Duty Purposes

The introduction of the surcharge for Stamp Duty undervaluation in section 103 Finance Act, 1991 has highlighted again the very dangerous area of "valuation" for tax purposes. A similar provision was introduced in Section 79 Finance Act, 1989 in relation to capital acquisitions tax although the penalties are not so draconian as in the, later legislation. In addition therefore, to the difficulties it causes on future disposals for capital gains tax purposes, undervaluation of property for both taxes is a serious risk in respect

of currant transactions. Pre-surcharge situation

The introduction of the surcharges makes such errors much more expensive for the taxpayer, and will cause the Revenue to investigate the valuation of property more thoroughly. Stamp Duty Section 103 Finance Act, 1991 covers the provisions relating to under-value for stamp duty purposes. Once the instrument operates or is deemed to operate as a voluntary disposition under Section 74 Finance (1909/10) Act, 1910 or Section 24 Finance Act, 1949, and the statement of value of such property or minimum amount of value referred to in Section 24 ("the submitted value") is less than the value as ultimately agreed with

An artificially low base cost has its own penalty when the property is disposed of. The undervaluation on acquisition will be exaggerated by indexation: For example, property acquired on 1 May, 1986 under a voluntary disposition, from father to son, the real value being £65,000 but the value submitted was, inadvertently, £50,000 for stamp duty and gift tax purposes. No great dis- cussion took place and the Revenue "accepted" the valu- ation as submitted. This property was disposed of on 1 September, 1991 for £100,000. Ignoring legal costs, and the stamp duty on acqui- sition the result is as shown in Table 1 below.

by Brian Bohan BL, Solicitor, (Chairman Law Society Taxation Committee 1990-1991)

the Revenue Commissioners (the "ascertained value") by certain percentages, the surcharge be- comes payable. Those percentages are: Surcharge as % of duty Where the submitted value is less than the ascertained value by an amount which is greater than 10% but not greater than 30% of the ascertained value - (subject to the minimum difference in value of £5,000). 50% Where the submitted value is less than the ascertained value by an amount which is greater than 30% but not greater than 50% of the ascertained value. 100% Where the submitted value is less than the ascertained value by an amount which is greater than 50%. 200% This surcharge is mandatory under the legislation except that in subsection (1) it is stated to be a penalty and under section 100(3), Finance Act, 1991 the Commis- sioners may, if they think fit, remit any penalty payable on stamping. It is to be hoped that this will be availed of to a great extent in view of the draconian provisions of the stamp duty legislation. 407

Disposal Acquisition £50,000 Indexation 1.218 Indexed acquisition cost

£100,000

£60,900 £39,100 £4,000 £35,100

Gain Annual allowance

Taxable Gain Tax at 35%

£12,285

The position should have been: Disposal Acquisition £65,000 Indexation 1.218 Indexed acquisition cost

£100,000

£79,170 £20,830 £4,000 £16,830

Gain Annual allowance

Taxable Gain Tax at 35%

£5,890

The difference, £6,395.