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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
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.
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
Disposal
Acquisition £50,000
Indexation 1.218
Indexed acquisition cost
£100,000
£60,900
Gain
Annual allowance
£39,100
£4,000
Taxable Gain
Tax at 35%
£35,100
£12,285
The position should have been:
Disposal
Acquisition £65,000
Indexation 1.218
Indexed acquisition cost
£100,000
£79,170
Gain
Annual allowance
£20,830
£4,000
Taxable Gain
Tax at 35%
£16,830
£5,890
The difference, £6,395.
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.
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