market value

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*Inheritance tax is charged on the market value of property at death and capital gains tax is charged on the market value of an asset at the time of disposal. In both cases, statute gives only a cryptic definition of the term “market value” and its meaning has been established by a line of cases. In 1994Lord Justice Hoffmann gave a good summary of the process of determining market value in IRC v Gray [1994] STC 360 (CA) 371–72: “The property must be assumed to have been capable of sale in the open market – the hypothesis must be applied to the property as it actually existed even if in real life a vendor would have been likely to have made some changes or improvements before putting it on the market. The hypothetical vendor is an anonymous but reasonable vendor who goes about the sale as a prudent man of business. The hypothetical buyer is slightly less anonymous. He is assumed to have behaved reasonably. The concept of the open market involves assuming that the whole world is free to bid and then form a view about what in those circumstances would in real life have been the best price reasonably attainable”.

Subjects: Law.

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