CAP TAX Flashcards
(142 cards)
1
Q
Was the residential property let? If it was let could you adopt the investment method?
A
The residential property was let, I could have potentially adopted the investment method, however there was comparable evidence available of similar properties.
2
Q
If you maintained your comparable method approach, and there was an AST in place at the valuation date, would you apply a discount?
A
Yes, in accordance with Akanwvo v Revenue and Customs Commissioner’s 2018 I would have applied a discount which ranges from 10-15% depending on the amount terms of the tenancy and local market conditions.
3
Q
For the estate in Croydon, the when did the subject property’s lease commence? How did you determine it was rack rented?
A
The subject property was leased in January 2022 (6 months before the valuation date).
I reviewed the rent, comparing it to current market rates.
The rent was market rent.
4
Q
The property is rack rented but there is tenants break clause in 5 years and it is assumed the tenant will exercise their break option.
Market evidence suggests a 12 month void period. How would you review this?
A
I would apply a higher risk to reflect that the property would be vacant for 12 months.
5
Q
What would you advise if it was under rented or over rented?
A
Term and reversion - under rented
Hardcore and layer - over rented
6
Q
What yield for you adopt? Why? What adjustments did you make to the comparable yield evidence? How risky was the subject property? How did you reflect this in your yield?
A
Market yields are 7.5% gross - all risk yield.
I adjusted for the fact that my property was in a secondary location, weak tenant, and a short lease.
7
Q
You sensed check your valuation using comparable sales. Could you have adopted any other investment approach?
A
Yes, I could have adopted the DCF (independent review- may ask).
The comparable and investment method was more straight forward for the type of properties I was valuing. The evidence was readily available.
The traditional investment method was more suitable given the straightforward nature of the rental income and market evidence.
8
Q
If your client instructed you to provide a value less purchasing costs, what would your approach be?
A
If instructed to provide a value excluding purchasing costs, I would adjust market value by deducting the typical costs associated with purchasing the property (legal fees, stamp duty and agency fees) which are 5-6%.
9
Q
Can you describe the composition of the mixed use estate and explain why a valuation for IHT purposes was required?
A
The estate comprised both residential and commercial.
A valuation was required for IHT purposes to determine the estates total value at the time of death, ensuring the correct tax liability was calculated.
10
Q
How did you determine the appropriate valuation method for the different types of properties within the estate?
A
For the residential properties I used the comparable method, as there were transaction evidence available of similar properties.
For the commercial properties, I applied the investment method, and identified transactional evidence of similar properties and yield evidence.
11
Q
What were the main challenges you faced in valuing an estate with both residential and commercial components?
A
The main challenge was ensuring accuracy when applying different valuation method methods.
Cross referencing market evidence for both property types.
Balancing different data sources and adjusting for tenancy situations.
12
Q
How did you confirm that the commercial properties were rack-rented, and why was this important for your valuation?
A
It determined my approach.
I cross checked the rent against market evidence.
If the rent was over or under rented then I would have applied a different investment approach.
13
Q
What case did you apply to your undivided share example? And hpw did you apply it?
A
The Wright and Moss v CIR case.
Case established that discounts for undivided half share interests should range between 10%-15% depending on whether the co-owner was in occupation.
I applied 15%.
14
Q
Why did you apply a 15% discount?
A
The 15% discount was applied because the co-owner was in occupation as their main residence.
If the co-owner was not in occupation, the discount would have been lower, around 10% depending on whether the purpose behind the trust still exists (James Andon St Claire-Ford v HMRC).
15
Q
Can you explain the specifics of the property and why a valuation of the 50% share was required for IHT purposes?
A
The valuation was needed because the property was jointly owned by two sisters, and one had passed away.
For IHT purposes, the value of the deceased sisters 50% share needed to be established.
16
Q
What challenges are associated with valuing a partial ownership interest in a property, particularly when the co-owner occupies the property as their main residence?
A
Challenges include the appropriate discount since the occupancy and existing trust complicates selling or transferring the property.
The shared ownership and right of residence make the property less marketable, effecting its value.
17
Q
Can you describe the comparable method of valuation and how you applied it to this specific case?
A
- I identified comparable evidence.
- I verified the comparable evidence.
- I adjusted the comparable evidence (size, layout, valuation date).
- I analysed the comparable evidence to arrive at an opinion of value.
- I reported my value.
18
Q
Are there circumstances where you might depart from the case law for undivided shares and apply your own %?
A
Minority shares (Charkham v CIR): Discount greater than the typical 10% might be necessary for minority shares, discounts over 20% are rare but were applied in the Charkham case.
Majority shares: although the owner of a majority share has more control, there can still be disadvantages, such as dealing with a co-owner who might not want to tell. In such cases, a did king of up to 10% is typical.
19
Q
What can you you tell me about any CGT reliefs? Was this 0.5 required for reasonable enjoying of the residence?
A
Principal Private Residence Relief.
Applies to up to 0.5 hectares of land if it’s necessary for enjoying the property. If the land is more than this, only the part needed for enjoyment gets relief.
Vary v Lynes: the court looked at whether extra land was needed for enjoying the property. They considered things like privacy, the houses size, and how the land was used. The decision was based on principal needs, not just personal performance.
20
Q
What is apportionment and how is it worded in the legislation?
A
The Taxation of Chargeable Gains Act 1992, section 42.
States that where an asset is required in parts (e.g. land and buildings), the acquisition cost should be apportioned between those parts on a just and reasonable basis. This allows for a fair reflection of the respective values of the different components of the property.
21
Q
How did you identify your comparables for your Residential and Land case?
A
I used our internal database, Rightmove and auction sites like EiG.
Houses - I identified similar transactional evidence.
Land - I identified similar transactions of land sold without planning permission.
22
Q
Can you explain the specific circumstances of the property acquisition and why an apportionment of the acquisition cost was necessary?
A
The acquisition in March 2016 included both the residential property and parcel of land.
HMRC instructed us to apportion to accurately determine the value of each for CHT purposes, as the land was redeveloped to construct a detached dwelling which was sold in March 2021.
23
Q
How did you ensure the values you determined for the house and land were accurate and reflective of the market at the time of the acquisition?
A
I compared the apportioned values with comparable evidence at the acquisition date.
Considered market trends.
Stood back and look.
24
Q
How did you determine the market value of the house and land separately?
A
I utilised the comparable method.
I identified transactions of similar properties and plots of land.
I was unable to identify direct transactional evidence of similar plots of land, therefore I broke down the cost to a £ per acre and adjusted and analysed to arrive at a value.
25
Can you explain the CGT implications of apportioning the acquisition cost in this manner? What impact did it have on the final CGT calculation?
Since the land was redeveloped and sold separately in 2020, it is essential to apportion the original acquisition cost accurately between the house and land.
Required to calculate the capital gain on the land. Failing to apportion correctly cold lead to an inaccurate calculation of the capital gain, resulting in over or underpayment of CGT.
Need to ensure that the valuation of the residential and land are valued correctly.
26
In cases where market comparable are difficult to find, how would you approach the valuation and apportionment process?
If comparable evidence was difficult to find then I would have considered market data, or identified comparable evidence further afield and adjusted accordingly.
27
What would you do if there was a significant discrepancy between the combined value of the house and land and the total acquisition cost?
I would first, cross check my valuation and methodology.
If after sense checking my valuations, I consider them to be accurate, then I would have advised HMRC of my valuations, providing a clear rationale for the values determined.
28
If the client disagreed with your valuation or apportionment, how would you handle this situation?
I would have arranged to discuss my valuation with them (over the phone or via email).
I would have clearly explained to them my methodology, detailing comparable evidence relied upon.
I would ask the client if they could provide any additional evidence, that I may have not considered.
I would review this evidence, and if necessary, revisit my valuation.
If we could not reach an agreement, then I would refer them to appeal / ADR.
29
What was the declared value for the development CGT case?
£580,000.
30
Talk me through your GDV?
The development was mixed use, with GF commercial and residential above.
I utilised the comparable method for the residential part and the investment method for the commercial part, identifying comparable rental evidence and yield evidence.
31
How did you sense check your Residential Land Value?
I cross checked it against multiple sources such as comparable land sales and market trends.
32
What do you mean by special value?
Special value refers to the additional worth or premium that a particular buyer might place on an asset above its general market value, due to the buyers unique circumstances, interests or needs.
33
Can you provide an overview of the property and why it required a valuation for CGT purposes?
The property was a two-bed, semi detached ex council house located in Tottenham Hale.
It resisted a valuation for CGT as it was a connected party sale.
34
How would you have valued if there was no planning permission?
I would have valued it in its existing use.
However, due to it having planning permission, I took the view that the site will have development value and that in these circumstances the taxpayer should be considered to be a special purchaser and would be prepared to reflect this value in their bid.
35
Why was it important to consider the property’s development potential rather than just its existing use?
Market Value, CGT S272: estimate the property’s market value, which is what I reasonably expect the property to fetch if sold on the ground that the whole of the property is placed on the market as one at that time.
The planning permission significantly impacted its value, in this context the MV should account for the additional value derived from the planning permission.
Statutory valuations can also take into account special purchaser.
36
Can you explain how you determined the current market value of the property in its existing condition? What factors did you consider?
I considered its existing use as a dated, 2
-bedroom semi detached house.
I identified similar transactional evidence.
I adjusted the evidence downwards to reflect that the subject was in poor condition.
I analysed this evidence to arrive at an opinion of value.
37
How did you estimate the GDV for the site, and what method did you use to subtract the total development costs?
GDV- estimated the valuation of the development using the comparable method for the residential flats and investment method for the commercial units.
I used BCIS to calculate and deduct the costs for demolishing the existing structure and building the mixed use development.
As well as deducting associated costs for marketing, agents and professional fees, statutory costs and site prep.
As well as finance on a straight line basis assuming 100% debt compounded over the estimated length of the development. I estimated a conservative length of 12 months at an interest rate of 5%.
I also deduced a profit of 20% and made a contingency allowance of 2.5%.
Following these deductions, I was able to establish the total residual value.
38
Was this a red book valuation? Can you reflect special value in a red book valuation?
No, this was not a RB. You cannot reflect special value in a RB valuation.
39
How did you approximate the apportionment of the total residual land value between the two semi-detached houses on the site? What factors influenced this apportionment?
I used our VMS software to determine the area of the subject.
I then apportioned the share to the subject area and then deducted the existing use value.
40
How did you handle the disagreement with the agent regarding the basis of the valuation? What arguements did you present to justify considering the development potential?
The agent argued that the property should be valued in its existing use.
I advised that that the property’s development potential needed to be considered in the valuation and I would also need to reflect the special purchaser.
41
What would you have done if the agent had not agreed with your reasoning? How would you have resolved this dispute?
I would have tried to negotiate a value with the agent, but if we did not reach an agreement then I would have advised HMRC of my valuation stating that it was un-agreed.
42
Is it your role to always increase the value of inheritance tax?
No, it is not my role to increase the value of inheritance tax. My responsibility is to provide a fair and accurate valuation based on current market conditions, property characteristics, and relevant guidelines.
43
How did you source an appropriate yield for your investment method?
I considered market transactions of similar properties sold near the valuation date and analysed and adjusted to arrive at an appropriate yield.
Analysed for the secondary location, tenant profile, and length of tenancy.
44
Was the residential properties in the estate occupied? How did you reflect that the property was occupied in your valuation?
Yes, the property was occupied.
I applied a 5% discount to reflect that the properties were occupied.
45
Was the tenant contracted into the 1954? If so, how does this affect the valuation?
The 1954 act gives the tenant security of tenure. In my example, it was at market rent, therefore I did not to do a term & reversion or hardcore method, but if I did, I would factor this in by applying a higher risk.
46
Was the tenant contracted into the 1954? If so, how does this affect the valuation?
The 1954 act gives the tenant security of tenure. In my example, it was at market rent, therefore I did not to do a term & reversion or hardcore method, but if I did, I would factor this in by applying a higher risk.
47
You stated that you managed to agree on a value with the executor, what would have happened if you hadn’t been able to agree?
DOA (defendable on appeal), ADR
48
Is there any legislation regarding undivided shares?
The Trusts of Land and Appointment Trustees Act 1996
49
Are you aware of any other case law regarding half shares?
Wight and Moss v CIR 1982 (Nellie Wight Case)
Provides us with importance guidance on the valuation of undivided half-shares, where a co-ower was in occupation of the property at the valuation date.
* 15% if the other co-owner is in occupation
* 15% if the co-owner is not in occupation but the purpose behind the trust exists
St Clair Ford v HMRC - where the other co-owner is not in occupation and the purpose behind the trust no longer exists (10%)
50
What’s the difference between a joint tenancy and tenants in common occupation?
Joint tenancy - equal ownership (50/50)
Tenancy in common (differing share interests 25/75)
51
Where do you find the definitions of market value for IHT and CHT?
Section 160 IHT Act (1984)
* This definition is focused on the hypothetical sale value at the date of death for tax purposes.
* It assumes a willing buyer and seller in an arm's length transaction.
Section 272 TCGA (1992)
* Similar to IHT, this definition is also concerned with a hypothetical sale value, assuming a willing buyer and seller.
* It's used to determine gains for taxation purposes at the point of disposal (e.g., sale, gift, or transfer).
VPS4 Market Value (RICS Valuation - Global Standards)
* Doesn't consider special purchaser
* Doesn't disregard flooding of market
* Doesn't disregard prudent lotting
52
What is SDLT and what are the rates?
The Finance Act 2003
Up to £250,000 - 0%
£250,001 - £925,000 - 5%
£925,001 - £1.5M - 10%
Above £1.5M - 12%
If you're buying an additional property you have to pay an additional 3% in SD on top of standard rates.
£40,000 - £125,000 - 3%
£125,001 - £250,000 - 5%
£250,001 - £925,000 - 8%
£925,001 - £1.5M - 13%
£1.5M + - 15%
53
Can you tell me what AED is?
Annual Tax on Enveloped Dwellings.
ATED is an annual tax payable mainly by companies that own UK residential property over £500K.
54
Can you give me inheritance tax reliefs?
• Quick succession relief, this is to prevent estates being decimated by successive beneficiaries dying within a short time of each other.
• Agricultural
• Business property relief
• Loss on sale relief
• Tapered relief
55
Can you give me exemptions from IHT?
Potentially Exempt Gifts up to 7 years prior
Spouse or Civil Partner
Annual Tax Exemption up to £3,000
Gifts registered to UK charities
56
What was the market like in Croydon at that time?
Rental evidence was around £350/ZA.
The market was recovering, there were a number of vacant units, trend towards local and independent businesses.
57
How do you work out a chargeable gain?
The Taxation of Chargeable Gains Act 1992
1. Value the subject at the acquisition date
2. Value the subject at the disposal date
= chargeable gain
58
What are the rates of CGT?
INDIVIDUALS
10% - BASIC
20% - HIGHER
RESIDENTIAL
18% - BASIC
24% - HIGHER
59
Name examples of reliefs for CGT.
Private Residence Relief - primary residence
Entrepreneurs Relief - business owner selling all or part of their business
Rollover relief - reinvest proceeds in certain business assets
Gift relief - gifting a business asset to someone else
Annual Exempt Amount - £12,300
60
Why did you consider hope value? How did you report hope value?
The potential value which could be achieved in the future. For example the impact that planning permission can have if granted for a site.
Applied 15% in line with Fifield case.
- Unreasonable to prevent residential development.
61
Talk me through your negotiations.
I arrived at a value at the valuation date based upon a range of evidence, I then communicate this to evaluer via a formal opinion of value.
I as then contacted by the valuer which I then entered into negotiations.
Across email, I presented my evidence and reasoning for reaching my value. The valuer requested a telephone call, over the phone, I listened to the valuers reasoning and provided my methodology and reasoning to the valuation.
The valuer and I settled at a revised higher figure which I was able to report to HMRC.
62
There’s a lot of talk about abolishing IHT, with some saying that it’s unfair - what is your opinion?
I am unable to provide an opinion.
63
Where did you get your costings from? Why did you use the median range on BCIS?
I got my costs from BCIS, I used the median because it is a more robust and representative analysis of the data.
64
How would you have dealt with your undivided share case if it was a minority share?
Charkham case.
Due to the difficulty in obtaining an order for sale a higher discount may be applied ranging 10-20%.
65
How did you report hope value in your report?
I applied a 15% discount.
I identified comparable evidence of properties which had sold near the valuation date with the same planning scheme.
I adjusted and analysed the comparable evidence, deducting 15% discount in line with the Firfield case to reflect the likelyhood of the subject property getting planning permission.
66
What happens when you sell an asset to spouse or relative?
No CGT payable.
67
What yield did you apply in your investment valuation?
Based on comparable evidence I applied a gross yield of 6%.
68
What was the lease information of the property you valued using the investment method.
10 year lease, from Oct 2021.
5 year break clause.
69
Did the commercial units you valued using the investment method include accommodation?
No
70
This was for IHT purposes - what would have been the benefit of the executor in terms of value?
Lower value = less tax payable.
Standard rate - 40% tax payable.
Nil rate band - £325,000.
Residence Nil Rate Band (passed to children or grandchildren) an additional £175,000 may be added making the total tax free threshold £500,000.
71
Is Cap Tax/Local Tax valuations covered by the Red Book?
No, it’s a statutory valuation, we do it for HMRC, they are the client.
72
Is achieving a higher value the main aim for inheritance tax cases?
The VOAs main aim is to ensure that the estate is valued accurately, not to achieve a higher value to increase the tax
73
How did you determine it was market rent? How would your approach have differed if it was under or over market? Would the market deem this as a risky investment? Did you differ the yield in term, rather than reversion?
I utilised the comparable method and identified rental evidence of similar properties, I cross checked the subject rent and established it was consistent with the evidence.
Term and reversion - underrented
(Term - 7%
Reversion - 7.5%)
Hardcore and layer - overrrented
(Core - 8%
Top Slice - 11%)
The market would have deemed this as a medium risk, established secondary location.
74
What yields are you aware of? Name at least 3?
All Risk Yield - reflects all risks, returns and growth
Initial Yield = ARY applied to passing rent
Gross Initial Yield = yield on investment before deducting purchase costs
Net Initial Yield = yield on investment after deducting purchase costs
Reversionary Yield = applied to reversion (market rent) to reflect risk
Equivalent Yield = weighted average (used in hardcore and layer)
Equated Yield = IRR with explicit growth
75
What is PI cover? What level does the agency have?
To provide financial cover in the event a client suffers financial loss as a result of a breach of professional duty
76
What is a special purchaser? Is this reflected in the RB?
Where a particulr asset has special value to a particular purchaser ... because of the advantages arising from its ownership that would not be available to other buyers on the market
No its not included in RB Valuations
77
Name some CGT exemptions?
Annual Exempt Amount (£3,000 per individual)
Private Residence Relief
Gifts to Spouse or Civil Partner
ISA
Pensions
Chattels (art, antiques, jewellery) sold for less than £6,000
78
Did you reflect risk in your development valuation?
Reflected the risk in the profit.
Risk = Profit
*higher the risk, higher the profit. vice versa
79
Talk me through your residential valuation in Tooting (CT L2).
Wight and Moss v CIR (The Nellie Wight Case)
The Trustees of Land and Appointment Trustees Act 1996 (LTATA 1996).
I undertook an IHT 50% undivided share valuation involving a residential property in London.
I adopted the comparable method and arrived at an entirety figure.
The co-owner resided at the property, therefore having regard to the appropriate case law, I applied a 15% share discounted to the 50% value.
I discussed my valuation with the executor to ensure that they understood and agreed with the proposed value and reported the agreed value to HMRC.
80
What is hope value? Does this differ from development value? Talk me through your valuation.
An element of market value in excess of existing use value, reflecting the prospect of some more valuable future use.
Reflected as a % of GDV.
I determined the value of the subject property with the planning scheme by using the comparable method as there was direct transactional evidence available of a neighbouring property which had sold near the valuation date with the same planning scheme.
I adjusted and analysed the comparable evidence to arrive at a opinion of value and then deduced 15% for Hope Value.
81
How did you value the mixed use estate in Croydon? (CT L2).
Discounted Cash Flow Valuations Information Paper, November 2023.
Independent Review of Real Estate Investment Valuations, December 2021.
I valued a mixed use estate in Croydon for IHT purpose.
I used the comparable method to determine the value for the residential properties.
The commercial properties were let and the lease terms were provided so I used the investment method of valuation to calculate their capital value at the valuation date.
I completed research of rental evidence within the locality and determined that the properties were let at market rent.
I the capitalised individual rents by a gross yield to arrive at a market value for each of the properties.
I advised a senior Valuer the valuations returned, I advised the executor and reported the figures to HMRC.
82
What advice did you provide in regard to your valuation of the flat in Fulham.
Comparable Evidence in Real Estate Valuation, 2019.
I provided the valuation for a residential flat in Putney for IHT purposes.
I adopted the comparable method of valuation gathering transaction of of similar properties sold within the locality, close to the valuation date and found that the returned value appeared low.
I arranged to inspect the property and noted that it had been refurbished to a high standard and the value returned didn't reflect this.
On return to the office, I advised the executor that the comparable evidence presented the value returned to be too low and a revised returned value was agreed and returned to HMRC.
83
What advice did you provide for the development in Tottenham Hale? (CT L3).
RICS Professional Statement, Valuation of Development Property, October 2019.
Taxation of Chargeable Gains Act 1992.
I completed the valuation of a semi-detached property in Tottenham Hale for CGT purposes, following a connected party sale.
The property formed part of a site with planning permission for a mixed-use development, and the adjoining semi-detached house was owned by the same purchaser as the subject.
Initially, I utilised the comparable method to determine the existing use value.
I then completed market research to assess the GDV of the site using the comparable and investment method.
I used BCIS to calculate and deduct the costs for demolishing the existing structure and building the mixed use development.
As well as deducting associated costs for marketing, agents and professional fees, statutory costs and site prep.
As well as finance on a straight line basis assuming 100% debt compounded over the estimated length of the development. I estimated a conservative length of 12 months at an interest rate of 5%.
I also deduced a profit of 20% and made a contingency allowance of 2.5%.
Following these deductions, I was able to establish the total residual value.
I apportioned the value between the two-semi detached houses on the site and considered special value.
I provided reasoned advice to the agent stating that the development potential had to be considered in the valuation. After lengthy negotiations, the agent agreed with my reasoning and as a result, a higher value was agreed for the property.
84
What advice did you provide for the dilapidated property in Fulham?
I completed the valuation of a terraced residential property for IHT purposes.
The valuation report provided referenced the property was in poor state of repair and required full refurbishment throughout.
I reviewed the planning history and noted that planning approval had been granted to extended the property.
I utilised the comparable method and identified properties in a similar condition which had sold with the same planning scheme, close to the valuation date.
I inspected the property to confirm the condition and externally inspected the comparable properties.
Utilising the comparable evidence, I arrived at a higher valuation and deducted 15% in line with the Filfield case given the risk that planning permission was not granted at the valuation date.
I then entered into negotiations with the executor, advising that my valuation took into account the significant factor of planning approval obtained after the valuation date.
A revised valuation was agreed upon, which I then reported to HMRC.
85
What advice did you provide for the residential with land in Finsbury?
I provided the apportionment values for a residential with land in Finsbury for CGT purposes.
I used the comparable method of valuation to value the residential property at the acquisition date (30th March 2016).
I then identified comparable plots of land using EiG.
The comparable evidence identified consisted of single plots of land and individual houses; therefore, I adjusted the evidence to reflect that the subjects were sold as a single entity.
I cross-checked my valuation against the total acquisition cost to ensure they reasonably aligned.
I advised HMRC of my approach and how I arrived at my apportionment in my report to HMRC.
86
Is IHT always 40%?
No IHT is not always 40%, there are exemptions and reliefs available.
87
What is the hope law case law?
Prosser - 50% chance - 25%
Fifield - unreasonable to prevent residential development - 85%
Honeychurch - permission to be granted within 2-3years - 65%
Monro - purchaser might anticipate some difficulty - 55-60%
88
What is the UK VPGA 15 guidance?
Replaces UKGN3
UKVPGA 15 (May 2024)
Provides an overview of the statutory basis of market value for IHT, CGT, SDLT and ATED.
89
Where your comparables also located in secondary locations?
Yes
90
What do you understand by Permitted Area?
Private residence relief.
Up to 0.5 hectares.
91
What is prudent lotting? What is the relevant case law?
Duke of Bucclech.
The principle of prudent lotting applies where an estate consists of items of property which properly may be treated as seperate units in order that the best price can be obtained.
92
What happened in the IRC v White (Nellie White) case?
The co-owner was occupying the property as her home and this justified a 15% discount on the grounds that it was not ‘highly likely’ that a court would order possession.
93
When was the effective date of the Red Book UK National Supplement?
1st May 2024
94
What is the main case law for special purchaser?
IRC c Clay (1914)
Established that where there is a known purchaser in the market who is willing to buy at a considerably higher price than anyone else. A
95
What does the RICS PS Comparable Evidence in Real Estate Valuation say about hindsight evidence?
Comparable evidence should only be used if it would have been available to the valuer on the date of the valuation.
96
What does the RICS PS Comparable Evidence in Real Estate Valuation say about hindsight evidence?
Comparable evidence should only be used if it would have been available to the valuer on the date of the valuation.
97
For your undivided share case, did you deviate from the percentage?
No, it was a very similar situation to the subject and I sight feel the need to deviate from it.
98
What is the difference between All Risk Yield and Initial Yield?
All risk yield applied to full market value
Initial yield applied to quoted sale price and passing rent
99
What is the difference between All Risk Yield and Initial Yield?
All risk yield applied to full market value
Initial yield applied to quoted sale price and passing rent
100
What is marriage value?
Created by the merger of interests, either physical or tenurial.
101
What is PET?
Potentially Exempt Gifts up to 7 years prior.
6-7 years - 8%
5-6 years - 16%
4-5 years - 24%
3-4 years - 32%
102
Have you ever valued a property in 1982 for CGT?
Any gains on assets acquired before 31 March 1982 are now calculated based on their values as of 31 March 1982, rather than when they were first acquired
103
Why 1982?
The UK experienced high levels of inflation throughout the 1970s, which significantly increased the nominal value of many assets without reflecting a real economic gain
The government wanted to ensure that only real gains, not gains inflated by price rises, were taxex
104
Provide me with a high overview of UKVPGA15 guidance?
Provides guidance on Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, the Annual Tax on Enveloped Dwellings and Residential Property Developer Tax
105
What are the thresholds for IHT?
Nil rate band - £325,000
Residence Nil Rate Band - £175,000
Combined threshold - the nil rate band and residence nil rate band can be combined for married couples or civil partners - £1,000,000
Tapering of RNRB - £175,000 starts to taper for estates valued over £2,000,000 - for every £2 over the £2,000,000 threshold, the RNRB is reduced by £1
106
When would you be exempt from paying IHT?
1. Below the NRB
2. Spouse or Civil Partner Exemptions
3. Charity Donations (reduced to 36%)
4. Residence Nil Rate Band (left to children, grandchildren) you can benefit from £175,000 additional allowance
5. Small gifts exemptions (£250)
6. Annual gift allowance (£6000)
7. Potentially Exempt Transfers (7 years)
107
What is meant by undivided share?
Where a land interest has joint owners or owners in common where each owner shares an entitlement to a share in the property. Such shares are held under a trust of land.
108
In respect of the Croydon example, if you were an agent representing the tax payer, what possible reliefs would be available to them?
Business relief - 100% or 50% relief
Charitable relief - 40% to 36%
Loss of sale
109
I note the property in Tottenham formed part of a site with planning permission. How would you approach the situation if you thought it had development potential but no planning granted at the time of the valuation?
I could’ve considered hope value if there was evidence available at the valuation date that demonstrated that it would not be unreasonable to presume that development would be granted.
110
In your example you considered special value. Don’t you mean special purchaser? What is this and what is the relevant case law?
IRC v Clay 1914
Parties agreed house was only worth £750 as a dwelling guide but nursing home paid more as a special purchaser interest
111
For your estate example in Croydon, did you consider prudent lotting? What is this?
No I didn’t consider prudent lotting, due to the nature of the properties.
Prudent lotting refers to the strategic grouping or arrangements of properties or assets into lots for sale in a way that maximises value and minimises risk
112
I note you combined the estimate values of the house and land. Did you consider marriage value? What is the definition of this?
TBC
113
What is ATED and what is the threshold?
Annual Tax on Enveloped Dwellings
£500,000
114
What does the UKVPGA15 say about when a property cannot be sold legally?
We are to assume that all preliminary arrangements necessary for the sale to take place have been carried out prior to the valuation date
115
What happened in the St Claire-Ford v HMRC case?
This case involved the valuation for Inheritance Tax purposes of a half share in the freehold interest of a shop, in a Devon market town, which was let to a well-known retailer. The DV argued for a discount of 10%; whilst the surveyor representing the estate argued for 15%. The entirety value was also in dispute and the Tribunal determined this at the DV’s figure of £390,000. The Tribunal also agreed with the DV in the matter of the discount and applied 10%, giving an end figure of £175,500 say £175,000.
116
What happened in the Charkham v CIR case?
This case involved the valuation, at five different dates, of minority undivided shares in two blocks of central London property held by various members of the Charkham family.
117
What does the Comparable Evidence in Real Estate say about hindsight evidence?
Comparable evidence should only be used if it would have been available to the valuer on the date of valuation
118
What relief is available with the charity act?
You may qualify to pay Inheritance Tax at a reduced rate of 36% if you leave at least 10% of your net estate to charity.
119
What is prudent lotting and the relevant case law?
The principle of prudent lotting applies where an estate consists of ins of property which property may be treated as separate units in order to achieve the best price
Duke of Buccleuch v IRC 1966, Lady Gray v IRC 1994 & Ellesmere v IRC 1918.
120
What are the assumptions to the UKVPGA15 basis of value?
- sale is a hypothetical sale
- vendor is hypothetical, prudent and willing
- purchaser is hypothetical, prudent and willing
- the vendor would divide the property, into whatever natural lots would achieve the best overall price
- the property is offered for sale on the market by whichever method of sale will achieve the best price
121
What happened in the Fifield case?
Fifield v CIK 1972
Bungalow with 7 acres of land. Evidence from LPA stated that it would be difficult to refuse planing permission.
122
Give me an overview of UKVPGA? What’s included in it?
It sets out specific requirements, together with supporting guidance, for members on the application of the RICS Valuation – Global Standards (Red Book Global Standards) to valuations undertaken subject to UK jurisdiction.
123
How easy was it to find land evidence in Finsbury? Why did you devalue it to a price per sq metre?
124
Can you tell me the base date for CGT?
31st March 1982
125
With the dilapidated property in Fulham, the property next door is one piece of evidence, how did you find other evidence which helped decide overall opinion?
The property had sold STC after the valuation date, at a higher price.
Evidence on the subject road of comparables with similar planning schemes.
126
Why do we not serve a ToE prior to a statutory valuation?
We have a service level agreement
127
Does marriage value always increase the value?
The actual impact on value depends on various factors, including market conditions, costs, and specific property circumstances. Therefore, each situation should be assessed individually.
128
How did you reflect that there were flats above your commercial units for the estate in Croydon?
Freehold
Valued as a whole
Applied a lower % to reflect the fact that there is less risk with accommodation- let the flat a lot quicker than shop
129
What other way could you have valued the shop?
- DCF
- Comparable method
130
What would you do if you couldn’t teach an agreement with the executor?
Seek HMRC opinion, they would have a say on what to do next
131
What is the case law that states that a special purchaser mustn’t be hypothetical?
Walton v IRC
132
Where can you find demolishment costs?
BCIS
133
Can the comparable method be used for commercial units?
Yes
134
What is the CGT annual allowance?
£3,000 from 6 April 2024
135
What considerations did you make for the land that you valued in your apportionment case?
use, potential use? development potential, size, access etc
136
How do you calculate CGT?
Acquisition less disposal less reliefs/tax allowance
137
Did you consider the garage on the land?
Single storey garage – was trying to see if there was any planning potential – could be a 2 storey extension on the side?
138
You say the house was a Georgian property? How did you confirm this?
139
140
What is private residence relief? Where does the 0.5 hectares come from?
The size of the “permitted area” of garden or grounds which qualifies for relief is defined in S.222(2) and (3) TCGA 1992
141
Why did you not split the shops & retail? Prudent lot?
Because I believed that the investment as a whole would be more attractive than a shop with a long leasehold
142
What was the Vary v Lynes case law?
the court looked at whether extra land was needed for enjoying the property. They considered things like privacy, the houses size, and how the land was used. The decision was based on principal needs, not just personal performance.
