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A new tax relief for gifts of real property to charities was introduced by S.97 Finance Act 2002. This amended S.587B & S.587C ICTA 1988 by extending the existing tax relief on disposals of investments to include land. The relief applies to Income Tax or Corporation Tax and is available to individuals or companies on the disposal to a charity of a beneficial interest in a ‘qualifying interest in land’. It applies to land located in the UK when disposals are not at arm’s length.
For a disposal that is a gift, the relevant amount of any deduction to tax is the market value of the interest in land at the time when the disposal is made, or in the case of a disposal at undervalue, the difference between the market value and the consideration paid.
‘Qualifying interest in land’ means freehold interest or a leasehold interest which is a term of years absolute (in Scotland, an owner’s interest or a tenant’s right over or interest in a property subject to a lease).
For the relief under S587B to apply it is necessary to dispose of the whole of the beneficial interest in a qualifying investment (which includes qualifying interests in land) to a charity. The granting of a lease does not transfer the whole of the owner’s beneficial interest but there is provision in the legislation that treats the granting of a lease as such a transfer.
Entitlement is subject to the donor obtaining certification by the charity acquiring the interest.
There is no entitlement to relief if there is a ‘disqualifying event’. This circumstance is where a donor or person connected with him becomes entitled to an interest or right in relation to all or part of the land, otherwise than for full consideration, within a relevant period (5 years from the 31 January following the year of assessment). For example, a lease-back on favourable terms.
This relief is in addition to the long established no gain/no loss Capital Gains treatment of gifts to charities at S.257 TCGA 1992.
Inspector’s may require advice on:
- The market value of the freehold or leasehold interest at the date of disposal.
- The market value of the premium on the grant of a lease, having regard to the actual lease terms.
- In the circumstances where there is a potential ‘disqualifying event’, the Inspector may need an opinion on whether the terms of the lease-back or other entitlement is at market value.
The ‘market value’ should be determined on the same basis as for Capital Gains cases.
For a joint disposal of the interest under one contract, it is not considered appropriate to make any discount for undivided share ownership.
The Inspector will usually require a ‘negotiated’ opinion of value. Requests for assistance from the Inspector will be in memo form setting out the facts and valuations required (CG20 is not to be used because this relief does not apply to Capital Gains Tax). Comprehensive information regarding the interest and any lettings is to be obtained by the Inspector and included in the submission to the DV (see 10.5 below). It is anticipated this will, in most cases, be sufficient for the DV but if further information is required the parties can be approached directly.
An inspection should be made before entering negotiations although this can be dispensed with if the returned value appears acceptable after an initial desk-top appraisal. When necessary, the inspection should be arranged with the acquiring charity. The charity may be aware of the need for a valuation because of the requirement for certification by them. In theory the valuation could be relevant to them but this is unlikely in practise, so the Inspector will not normally invite the charity to be party to the negotiations. Discretion as to the reason for inspection should be maintained by the DV.
Reports to the inspector should be in memo form, although VO1171 may be used as a guide, ensuring no reference is made to CGT. If the DV’s opinion differs from that returned but is within a range that has no tax effect, the DV should report indicating that ‘no question need be raised on the valuation returned’.
A ‘post transaction valuation check’ service is available. Such cases should be given priority as far as practical, so as to assist taxpayers in meeting their SA filing date (see Section 6.128)
Subject to the above, the cases should be dealt with in accordance with the same procedures as Capital Gains Tax cases (see Section 6). Unagreed procedure will similarly follow that for CGT, but if an appeal hearing is ultimately necessary this will be at the General Commissioners rather than the Lands Tribunal.
- A statement that the valuation requested is required for the purposes of determining relief under S587B/C ICTA 1988
- Whether a ‘negotiated’ or ‘not negotiated’ valuation is required
- Whether request is for a PTVC
- Taxpayer’s name & address
- Name, address, telephone number and reference of person with whom negotiations are to be conducted
- Date of disposal (the valuation date)
- Name, address & telephone number of charity acquiring the land (to assist making an inspection, if necessary)
- Description of property to be valued
- Sufficient information to identify the property, and in cases involving undeveloped land, provide a suitable plan
- Is the interest freehold or leasehold?
- If leasehold provide the date of commencement of lease, term, rent at valuation date, dates of rent review, liability for outgoings including repairs, any restrictive covenants, a copy of the lease if available
- If the property is let at the valuation date, provide full details of the lease(s) or tenancy as described in (11) above
- The valuation offered and a copy of any valuation report obtained
- Cost & date of acquisition of the land and details of any improvements made
- Details of any consideration received by the donor. Consideration may include the proceeds of a sale to the charity at undervalue or the value of a lease granted to the charity on beneficial terms. In the case of a lease on favourable terms provide full details of the lease as described in (11) above.
- Details of any interest in the property subsequently received by the donor or any connected person that you consider could potentially amount to a disqualifying event within Section 587C(8) ICTA 1988. If this involves a lease on apparently favourable terms provide full details of the lease as described in (11) above. Make clear to the valuer if you require an opinion on whether the interest (such as terms of the lease-back) was for full consideration or not.
- If applicable, the amount by which the valuation offered could be reduced without there being any effect on the amount of tax payable
- Any other papers or information that may be relevant to the valuation offered