CAPITAL TAXATION

Question 1

What is the definition of Market Value for IHT and CGT and where is it found?

Answer 1

Section 272 Taxation of Chargeable Gains Act 1992 and s.160 Inheritance Tax Act 1984
The price which might reasonably be expected to be achieved on a sale in the open market, subject to the explicit qualification that the price is not to be reduced on account of the market being flooded by reason of the assets to be valued being marketed at one and the same time

Question 2

Can you tell me the three occasions of charge for capital gains tax?

Answer 2

Disposal (sale of freehold, assignment of leasehold, gift of freehold/leasehold)
Part disposal (disposal of a physical part, grants a lesser interest e.g. lease)
Deemed disposal (taxpayer receives capital sum as compensation for damage or injury to an asset or for the surrender of rights, which is treated as a part disposal)

Question 3

Can you tell me what it meant by the term ‘prudent lotting’?

Answer 3

It was established in Ellesmere V IRC (1918) that market price was a price based on the separate values of the various parts, sold in whatever lot or lots would realise the best price. Duke of Buccleuch v IRC (1967) established that lotting can only be rejected if there was evidence that it was unnatural or artificial.

Question 4

Would you reflect a special purchasers bid?

Answer 4

It was established in IRC V Clay 1914 that where there is a purchaser willing to buy at a considerably higher price than anyone else, then the value is represented by the higher price or by a close approximation. The Indian Case established that the special purchaser could not be driven up to a price by the competition because he was not circumstance forced to buy. However, bidding could not be imagined to stop at the first advance over what other purchasers would be prepared to pay because the vendor is not compelled by circumstance to sell.

Question 5

What are the typical allowances for undivided shares?

Answer 5

If the co-owner will not agree to sale of the entirety, the owner of the deceased’s share can apply to the courts for an order for sale under Section 14 of the Trusts of Land and Appointment of Trustees Act 1996. If it is highly likely that a sale would be ordered then we would normally make an allowance of 10%. If the property was bought for the purpose of joint occupation and the co-owner is still living in the property then, because the prospect of obtaining an order for sale is less likely, we make a deduction of 15%, derived from the case of Wight & Moss V CIR 1982.

Question 6

Can you tell me three circumstances which give rise to hope value?

Answer 6

A use other than the existing use
Merger with an interest in another property
Merger with another interest in the same property

Question 7

Can you name some exemptions for Inheritance Tax?

Answer 7

Nil rate band of £325,000 and residence nil rate band of £175,000
Exempted gifts
Annual exemption of £3,000 each tax year

Question 8

What are some reliefs for IHT?

Answer 8

Loss on sale relief – sale within 4 years of death, sale value can be substituted for value determined. Sale value is sale price after adjustments. Have to apply to HMRC, if apply to HMC 3 years later and the market crashes then might not be gratned
Business relief – has to be relevant business property – sole trader/partnership. Shares in unlisted trading company. Must be trading company – investment or property dealing companies will not qualify. 100% relief. Shares in trading company (ownership >50%) get 50% relief. Land or building owned by individual used by partnership/company get 50% relief. Must have owned for at least 2 years.
Taper relief – only operates if the total value of gifts made in the 7 years before death is over the £325,000 tax threshold. Rate of tax on the gift reduces as the years between the gift and the death increase.
Agricultural Relief – Normally 100% relief on agricultural value. (Pre 1 Sep 1995 agricultural holdings act tenancy when vacant possession not obtainable within 2 years- 50% rate but this is rare). Occupation must exceed min period – 2 years if occupied by deceased or 7 years if tenanted. No limit on acreage or value. Includes various buildings and land occupied with them of character appropriate to the property.
Woodland relief – available if not covered by Agricultural property relief or business property relief. Claim must be made within 2 years of death and have been owner for 5 years. Value of land only is immediately charged. Tax will be paid when trees disposed of based on either proceeds of sale or net value at the time.

Question 9

What is private residence relief?

Answer 9

S.222 TCGA 1992 provides 100% relief for a gain realised by an individual in
A dwelling house or part of a dwelling house which is or has at any time in the taxpayers period of ownership been his only or main residence
Land which the taxpayer has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area
S222 (3) and (4) 1992 provided that the permitted area shall be 0.5 of a hectare or such larger area as is required for the reasonable enjoyment of the dwelling house as a residence, having regard to its size and character.

Question 10

What are the exemptions from CGT?

Answer 10

Exempt persons and organisations (crown, local authorities, charities)
Exempt assets (trees and underwood growing in commercial woodlands, chattels with a value of less than £6,000 and motor vehicles)
Exempt transaction (transfers between husband and wife, civil partners who are living together, gifts for the public benefit)

Question 11

Do non-resident taxpayers pay CGT?

Answer 11

Finance Act 2015 extended CGT to non resident taxpayers on the disposals of UK residential properties made after 5th April 2015

Question 12

What are the current CGT tax rates?

Answer 12

10% and 20% for individuals (not including residential property gains and carried interest gains)
18% and 24% for individuals for residential property gains
18% and 28% for individuals for carried interest gains
20% for trustees (not including residential property gains)
24% for trustees for residential property gains
20% for personal representatives of someone who has died (not including residential property gains and carried interest gains)
24% for personal representatives of someone who has died for residential property gains
28% for personal representatives of someone who has died for carried interest gains
10% for gains qualifying for Business Asset Disposal Relief
Individual and most trusts qualify for annual exemption
23/24 £6,000 for individuals and £3,000 for most trusts. Halfing for 24/25

Question 13

What is the definition of agricultural value and where is it found?

Answer 13

s.115 of inheritance tax act 1984
The agricultural value of any agricultural property shall be taken to be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property.

Question 14

What is the difference between the perpetual covenant and an Agricultural Occupancy Condition (AOC)?

Answer 14

AOCs can and often are lifted by the planning authority and the occupation of the dwelling is not dependent on there being nay land to be farmed (retired farmers and hobby farmers).
Under the perpetual covenant in s115 property must always be occupied for purposes of agriculture and occupied with enough land for it to remain of a character appropriate and thus meet the agricultural property definition in section 115. It must remain a farmhouse where the day-to-day farmer of the land resides and it must be the centre of farming operations.

Question 15

What affect does AOC have on value?

Answer 15

It is a very severe restriction because it impacts on the way the buyer can use the house in the future and depresses demand from purchasers. It also restricts prudent lotting

Question 16

What is the leading case on agricultural valuation?

Answer 16

Lloyds TSB Banking (Antrobus)V IRC 2005 where the lands tribunal found for a 30% discount from market value to agricultural value

Question 17

What do you understand by the term special purchaser?

Answer 17

Someone to whom the asset concerned may have an especial value that they will be prepared to pay a premium over and above what might be normal market value for the strategic advantage in mind.

Question 18

You undertook a CGT valuation for HMRC as at 1991. Please can you talk me through some of the difficulties with this valuation?

Answer 18

There was a lack of evidence of comparable values. Due to this I looked at internal market repots from Autum 1991 and Spring 1992.

Question 19

How did you adjust your land comparables?

Answer 19

I looked at agricultural land values these needed to be adjusted up to account for hope value. I also looked at industrial land values which needed to be adjusted down as the subject was land with hope value for industrial in 1991.

Question 20

Bromsgrove- What advice did you give HMRC?

Answer 20

I advised HMRC of my opinion of market value at both the 1991 and 2022 valuation dates.

Question 21

What method of valuation did you use for the disposal?

Answer 21

I used both the comparable and investment method.

Question 22

How did you determine what rent and yield to apply?

Answer 22

From looking at comparable evidence of rental values of offices within close proximity. This was the same for yields and I also looked at market report evidence for Bromsgrove

Question 23

Can you talk me through a valuation where you have considered prudent lotting?

Answer 23

I considered prudent lotting for a valuation of a residential dwelling and adjoining paddock in Swanage. I had to determine if I would value the house and paddock together or separately to reflect prudent lotting. In order to do this I looked at comparable sales for both the house and land separately. There was little evidence of land sales in the locality. There was evidence of larger properties selling with large plots of land. I had regard to local planning policy and discovered the property was located outside the settlement boundary and the council had a 5-year housing supply. I therefore decided to value the house and land together and reported the valuation to HMRC.

Question 24

What case law is there to consider for prudent lotting?

Answer 24

Ellesmere V IRC 1918 - price must be estimated on the basis that the properties were sold in whatever lots would realise the best price
Duke of Buccleuch v IRC 1967 – lotting can only be rejected if there was evidence that it was unnatural or artificial

Question 25

How did you approach the valuation for undivided share?

Answer 25

I had to determine what allowance to apply to the valuation for the undivided share. I considered case law. This included the James Anson St Clar Fod v HMC 2006 which determined a 10% discount was applied where the other owner is not in occupation. In this case, the co-owner was the partner of the deceased and they were in occupation of the property. I had regard to Wight and Moss V CI 1982 which determined a 15% allowance is adopted if the co-owner is in occupation f the property due to the sale being less likely. However in this case I was valuing a 92% share and felt that a 10% discount was still appropriate as this was a high value property and the deceased had the large majority share and therefore in a more powerful position.

Question 26

Where do you find UK VPGA 15? What does it stand for?

Answer 26

Within the Red Book UK National Supplement. It stands for Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax and the Annual Tax on Enveloped Dwellings and Residential Propety Developer Tax

Question 27

What is annal tax on enveloped dwellings?

Answer 27

Annual tax payable mainly be companies that own UK residential property valued at more than £500,000.

Question 28

What legislation is there for Inheritance Tax and Capital Gains Tax?

Answer 28

Taxation of Chargeable Gains Act 1992 & Inheritance Tax Act 1984

Question 29

When is payment due for Inheritance Tax?

Answer 29

By the end of the six month after the person died.

Question 30

What is the Inheritance Tax Nil Rate Band?

Answer 30

Nil rate band of £325,000 and residence nil rate band of £175,000 Basically no one pays tax under £325,000. Extra £175,000 if giving to direct descendants making it £500,000. Nil rate and residence nil rate can be transferred to spouse making total relief of £1million for husband and wife

Question 31

What is a potential exempt transfer?

Answer 31

No immediate charge on gifts between individuals. If donor dies within 7 years.

Question 32

How do you work out what the chargeable gain is for CGT?

Answer 32

Disposal proceeds less acquisition cost and any allowable expenditure = unindexed gain Less indexation allowance (companies only now and frozen from Dec 2017) = Chargeable gain.

Question 33

Do companies pay CGT?

Answer 33

If you are self employed sole trader or in a business partnership. Other organisations pay Corporation Tax.

Question 34

Do non-resident taxpayers have to pay CGT on UK residential property?

Answer 34

If an individual dies and not domiciled in the UK, IHT is only charged on UK assets.

Question 35

Please list three valuation assumptions made when arriving at market value for inheritance tax?

Answer 35

The sale is a hypothetical sale The vendor is a hypothetical, prudent and willing party to the transaction The purchaser is a hypothetical, prudent and willing party to the transaction For the purpose of the hypothetical sale, the vendor would divide the property i.e asset to be valued in whatever natural lots would achieve the best overall price All preliminary arrangements necessary for the sale to take place have been carried out prior to the valuation date The property is offered for sale on the open market by whichever method of sale will achieve the best price There is adequate publicity or advertisement before the sale takes place so that it is brought to the attention of all likely purchasers and The valuation should reflect the bid of any special purchaser in the market

Question 36

What is the difference between market value in the Red Book and for Capital Taxation?

Answer 36

Based on the concept of hypothetical sale, special purchaser is reflected, ignore effect of flooding of the market and take into account prudent lotting.

Question 37

What is agricultural relief?

Answer 37

Normally 100% relief on agricultural value. (Pre 1 Sep 1995 agricultural holdings act tenancy when vacant possession not obtainable within 2 years- 50% rate but this is rare). Occupation must exceed min period – 2 years if occupied by deceased or 7 years if tenanted. No limit on acreage or value. Includes various buildings and land occupied with them of character appropriate to the property.

Question 38

Can both agricultural relief and business relief apply at the same time?

Answer 38

You cant claim business relief on the value of an asset that you have already claimed agricultural relief on. You may be able to claim business relied on the value of an asset not fully covered by agricultural relief if you are a farming business and the conditions of business relief are met.

Question 39

What is loss on sale relief?

Answer 39

Where there has been a sale within 4 years of death, sale value can be substituted for value determined. Sale value is sale price after adjustments.

Question 40

What was the construction of the office in Bromsgrove?

Answer 40

Built in 1997, red brick construction with pitched tile roof.

Question 41

What planning had been on the site?

Answer 41

The land was included within Phase 2 planning permission of the development of Saxon Business Park. Planning for the office was submitted in 1996 and granted.

Question 42

Why did you consider agricultural and industrial land values?

Answer 42

Because as at 1991 the land was land with development potential for industrial. By considering agricutual land and industrial land values this helped to understand what the land would be worth without planning and once completed. I then knew my value would be somewhere between these figures.

Question 43

What valuation did you determine for 1991?

Answer 43

£12,500

Question 44

What yield did you apply in your investment method?

Answer 44

9%. This was based on comparable yields on offices within the locality and evidence from market reports in Bromsgrove.

Question 45

Why did you adopt both comparable and investment method for 2022?

Answer 45

As the yield evidence was poo in quality and an upwards adjustment in the yield brought the value down fairly significantly. Therefore I carried out the comparable method as a cross check and to make my valuation more reliable.

Question 46

What valuation did you determine for 2022?

Answer 46

£215,000

Question 47

Can you tell me more about the construction of the farm buildings?

Answer 47

Steel portal framed shed with timber purlins, concrete breeze block lower elevations, pat cement fibre and steel block profile sheeting upper elevation. Roof lights, concrete flooring.

Question 48

What is Class Q?

Answer 48

Class Q allows the conversion of building on or around agricultural units to houses without the need to apply for planning permission.

Question 49

What were the recent changes to Class Q?

Answer 49

It was extended to cover former agricultural buildings which are no longer part of established agricultural unit. Allows the creation of more dwellings over a larger maximum floor space then previously. Maximum limit of size for one property has been reduced from 465m2 to 150m2,

Question 50

What is hope value and how do you reflect this in your valuation?

Answer 50

Hope value is the value of potential planning permission on the land. Circumstances which give rise to hope value include an alternative use other than existing, merger with an interest in another property or merger with another interest in the same property. I looked at comparable barns with planning permission in place under class q.

Question 51

What is agricultural property relief?

Answer 51

Agricultural elide is normally 100% relief on agricultural value. There is criteria that must be met which includes that it has to meet the definition of agricultural.

Question 52

Why is the relevance between agricultural and market value important?

Answer 52

As agricultural relief is only applied on the agricultural value of the land however the market value may be more than agricultural value if there is hope value on the land.

Question 53

What was the construction of the house in Swanage and how large was the plot?

Answer 53

The property was a 4-bed detached house constructed in 2008. The house and garden was 0.7 acres and the neighbouring land was 0.8 acres giving a total plot size of 1.5 acres.

Question 54

What was the construction of the house in Stourbridge?

Answer 54

Traditional two storey Georgian detached with 228mm solid brick construction with pitched and slated roof.

Question 55

What are some typical Georgian features?

Answer 55

Sash windows

Question 56

Can you talk me through case law on undivided shares?

Answer 56

James Anson St Clair Ford v HMRC involved a trust of land and the discount for the undivided share was in dispute. It was in regard to the valuation of a half share in the freehold interest of a shop in a Devon market town. The DV argued for discount of 10% whilst the surveyor argued 15%. The decision was that 10% discount applied to half shares particularly when they are undivided and there is no likelihood that the surviving partner will remain in occupation. There is also the case of Wight and Moss V CIR 1982. This was in relation to an undivided half share in a dwelling house, valued following the death of one of the joint owners. The appellant contended for the valuation based on the income approach to reflect co owners bid. DV valued on the basis of vacant possession divided by two and then deducting 10%. Tribunal approved the DV approach but increased the deduction to 15%.

Question 57

Why did you determine a discount of 10% instead of 15%?

Answer 57

Because in this case the deceased owned a large majority share over 90% and this was a high value property of over 1 million and therefore in a more powerful position than the minority shareholder.

Question 58

Can you tell me about Stamp duty land tax?

Answer 58

You must pay stamp duty if you buy a property pr land over a certain price in England and Northern Ireland. You pay the tax you buy a freehold property, buy a new or exiting leasehold, buy a property through shared ownership scheme, are transferred land or property in exchange for payment. Current threshold is £250,000 for residential property but this is going to return to previous level of £125,000 at the end of March 2025.

Question 59

Who is liable for IHT?

Answer 59

Transferor normally liable – personal representatives – executors/ administrators. Self assessed tax that needs to bef paid before the grant of probate.

Question 60

What is capital gains tax?

Answer 60

A tax on the profit when you sell or dispose of an asset that has increased in value. The gain you make is taxed.

Question 61

What did you use the comparable and investment method for on Bromsgrove?

Answer 61

I used the comparable method to value the land at 1991. I used the comparable method of office sales for 2022 I used the investment method to also value the office at 2022.

Question 62

Which valuation method did you apply more weight to?

Answer 62

The comparable method due to the poor quality yield evidence.

Question 63

What is inheritance tax?

Answer 63

Tax levied on the value of a persons estate at the time of death. Can also be payable on certain transfers of value during their lifetime. Tax on capital as opposed to income. Self assessed tax need to be paid before grant of probate. The value transferred by a chargeable transfer

Question 64

What is a settlement boundary in regards to planning?

Answer 64

Line that wraps round the edge of village, town or city. In most cases development is supported on sites within the settlement boundary.

Question 65

What is the main legislation governing Capital Taxation?

Answer 65

Inheritance Tax Act 1984 and Taxation of Chargeable Gains Act 1992

Question 66

What does VPGA 15 provide?

Answer 66

Provides guidance to valuers who provide valuation advice to clients reporting in accordance with UK capital taxation requirements. Advisory not mandatory but VOA follow it.

Question 67

What are some reliefs for capital gains tax?

Answer 67

Roll over relief – available to taxpayers carrying on a trade, dispose of qualifying assets and reinvest the proceeds in other eligible assets. Taxpayer can elect to have the amount og any chargeable gain deducted from acquisition cost of new asset. Hold over relief – for qualifying gift, donor and done can elect to have donors chargeable gain reduced to nil but sum deducted from donees acquisition cost. Entrepreneurs relief – finance act 2008. Business claim gains made on disposal of trading business following cessation of trading business if property held min 1 year. Gains subject to 10% tax rate up to lifetime limit of 10 million of chargeable gains.

Question 68

What is the current rate of inheritance tax?

Answer 68

40% on death, if 10% of net estate left to charity lower rate of 36% may apply

Question 69

What is an interest in possession trust?

Answer 69

Where deceased leaves property to spouse for their life but after their death is passes to ‘remaindermen’ (children, grandchildren). Immediate post death interest. These trusts are not taxed as discretionary trust. Will be taxed as poart of spouses death estate.

Question 70

What is the interaction of IHT and CGT?

Answer 70

There is no CGT charge on death, and the benefit of any increase in value in an asset between the deceased acquisition of it and his death passes to his personal representative free of CGT, giving a base value uplift on death

Question 71

Where did you get evidence from for 1991 valuation?

Answer 71

Internal market reports

Question 72

How did you reflect hope value?

Answer 72

Applying a percentage based on case law.

Question 73

What advice did you give HMRC?

Answer 73

The market value as at 1991 and 2022

Question 74

What method of valuation did you use at the disposal?

Answer 74

Comparable and investment method

Question 75

Why?

Answer 75

Because investment method, yield was poor in quality, small changes in yield were having significant impact, therefore comparable method to cross check.

Question 76

How did you weight the evidence together?

Answer 76

There wasn’t brilliant evidence for either so needed the two but on balance because yield evidence was poor quality more evidence on the comparable

Question 77

How did you determine what rent and yield to apply?

Answer 77

I looked at comparable offices on the industrial estate for rental values, for yield values the same and looked at market reports

Question 78

Was the property let itself?

Answer 78

Was it overrented or under rented, capitalise in perp, decided it was market rent. I would have deferred income by 6 months for marketing.

Question 79

You carried out a valuation for Inheritance Tax purposes for a detached house in Swanage where you concluded the returned value was reasonable, how did you decide this?

Answer 79

Had regard to comparable evidence of properties of similar size in the location

Question 80

How did local planning policy impact on your decision regarding prudent lotting? What if there was hope value for planning?

Answer 80

Had regard to local planning policy and discovered the subject was outside the settlement boundary and 5 year housing supply and therefore felt planning was unlikely

Question 81

If you thought planning would have been granted would that have changed valuation?

Answer 81

Had there been hope for development I would have lotted the house and paddock separately. Hope value 2 ways – comparables with planning and take a deduction for case law. Other way is to carry out residual valuation, if you had something with planning, residual to cay out valuation to determine

Question 82

What case law is there to consider for prudent lotting?

Answer 82

Ellesmere V IRC 1918 – established that market price was a price based on the separate values of the various parts, sold in whatever lots or lots would realise the best price Duke of Buccleuch V IRC 1967 – established that lotting can only be rejected if there was evidence that it was unnatural or artificial

Question 83

Why did you adopt 10% for undivided share?

Answer 83

I had reference to case law. James Anson St Clair Ford V HMRC and Wight and Moss V CIRC 1982.

Question 84

What case law is there for undivided shares?

Answer 84

I had regard to James Anson St Clair-Ford v HMRC which involved a trust of land and the discount for the undivided share was in dispute. Valuation of a half share in the freehold interest of a shop in Devon market town, DV argued 10% discount, surveyor argues 15%. Determined that 10% is the discount to be applied to half shares particularly when undivided and there is no likelihood that the surviving partner will remain in occupation. There is evidence to suggest higher discounts for minority shares and where there may be other complications, but in the circumstances of this case, departure from convention not appropriate. I also had regard to Wight and Moss V CIRC 1982 which considered undivided half share in a dwelling house, valued following death of one of the joint owners. Appellants contended for valuation based on income approach enhanced slightly to reflect co-owners bid. DV valued on basis of vacant possession value of the house divided by two and then deducting 10%. Tribunal supported DV approach but increased deduction to 15%.

Question 85

What advice did you give for fam in Kidderminster?

Answer 85

The returned value negotiated with the solicitor and agreed a higher value with the solicitor which I reported to HMRC. Also advised HMRC that agricultural relief could be applied on the land. market value as not accounted hope. Market value and ag value for the land. so confirmed relief would be applicable as using for agriculture.

Question 86

You agreed the market value on the buildings what about the agricultural value?

Answer 86

There was no agricultural value, they didn’t apply for the relief as the buildings weren’t being used for agriculture.

Question 87

What about the agricultural valuation? Was that acceptable?

Answer 87

The agricultural relief on the land was acceptable. On my inspection I confirmed this was being used as agriculture and I determined there was no value above agricultural value

Question 88

What is the indexation allowance?

Answer 88

Accounts for the effects of inflation

Question 89

What happens to interest?

Answer 89

Accrues after 6 months

Question 90

Why did you source both agricultural and industrial land values?

Answer 90

As the site was ag land with development potential for industrial so I could determine where my valuation would be within this range.

Question 91

What are the 5 steps for private residence relief?

Answer 91

1. Determine the entity of the dwelling house 2. Identify land used as ‘garden or grounds’ 3. Decide the size of the land ‘required’ 4. Decide the location of the land required 5. Carry out any apportionments required

Question 92

Explain how your advice led to the collection of capital gains tax for you client?

Answer 92

I advised HMRC of my opinion of value as at the 1991 and 2022 valuation date.

Question 93

You mentioned 2 different valuation dates, why did you have those 2 dates?

Answer 93

The date the asset was required and the date is was disposed. Need the two dates to work out the chargeable gain.

Question 94

How do you work out the taxable charge?

Answer 94

Disposal proceeds less acquisition cost and allowable expenditure = unindexed gain Less indexation allowance = chargeable gain

Question 95

How did you assess the hope value, how did you arrive at the valuation?

Answer 95

Had regard to planning, considered case law. Honeychurch V Mckenna 1997 – where permission was to be granted within 2-3 years, the appropriate value adjusted figure was determined to be 65% of full development value. In this instance, planning took longer than 2-3 years and infrastructure in place before planning granted. I therefore adopted a lower percentage of full development value. 55% in this case.

Question 96

How did you decide how in between the figures of ag and industrial?

Answer 96

Had comparable of land sales in the locality so I weighted the evidence more towards this. Knew would be above ag value and around the industrial – hope value.

Question 97

Talk me through valuation for Saxon business park?

Answer 97

For 2022, I looked at comparables sales of office in close proximity to the subject. I also used the investment method of valuation. I researched into comparable rental evidence to establish a market rent for the property. I also researched into office yields. Limited evidence but adopted a yield of 9%. I capitalised the rent in perpetuity to establish the market value. I applied more weight to the comparable method due to the yield investment being poor in quality

Question 98

What is residential property developer tax?

Answer 98

From 1st April 2022, tax levied on the profits of large companies. Charged at a rate of 4% on profits that arise from residential property development and exceed the annual allowance. The annual tax is £25 million. Companies must be subejct to UK corporation tax

Question 99

When was the market rent set?

Answer 99

The rent was set in September 2022, the valuation was October

Question 100

How did you establish it was rack rented?

Answer 100

Had regard to comparable evidence in the locality of office rents.

Question 101

When did the last edition of UK red Book supplement come out?

Answer 101

Last edition May 2024

Question 102

Changes to VPGA 15? What affect on your work area have the changes had?

Answer 102

Changes to VPGA 15 included taking out case law and referred surveyors to the HMRC manuals but conceptionally the approach did not change.

Question 103

How did you arrive at the appropriate yield in your 2022 valuation?

Answer 103

I had regad to comparable evidence from offices in close proxmaty. I also looked at market report evidence.

Question 104

Did you apply net or gross yield?

Answer 104

Gross yield

Question 105

How high was your gross yield?

Answer 105

9%

Question 106

If you would have used net initial yield how you that compare with your gross?

Answer 106

Net initial deducts for purchasers costs. They are taken off at the end. The net initial yield would be lower.

Question 107

How would your calculations look?

Answer 107

Gross yield so capitalise in perp would be rent x yp net yield common practice - need to take purchasers costs as final step, use your rent and net yield but as final step tak off purchasers costs. Average purchasers costs is 5.8% but its made up of stamp duty and legal costs and stamp duty varies depending on value. net yield is lower than gross but whichever method you use you should get to similar figure. Lower yield capital valuer is higher, take of purchasers costs as final step.

Question 108

Can you talk me though potential tax calculations here?

Answer 108

Disposal proceeds less acquisition cost and any allowable expenditure = unindexed gain Less indexation allowance (companies only now and frozen from Dec 2017) = Chargeable gain.

Question 109

What is allowable expenditure?

Answer 109

The incidental costs of acquisition & disposal: a) Surveyors, accountants & legal fees b) Costs of transfer or conveyance c) Advertising costs d) Costs reasonably incurred in making any valuation or apportionment Any capital expenditure on improving or enhancing the value of the property since it was acquired. Any expenditure on establishing, preserving or defending title to or rights over an asset

Question 110

What reliefs might apply in Saxon business park case?

Answer 110

Entrepreneurs relief – finance act 2008. Business claim gains made on disposal of trading business following cessation of trading business if property held min 1 year. Gains subject to 10% tax rate up to lifetime limit of 10 million of chargeable gains.

Question 111

You valued a farm in Kidderminster, why did none of the buildings qualified for agricultural relief?

Answer 111

They weren’t being used for agricultural purposes and they hadn’t claimed agricultural relief on them

Question 112

what land would qualify for agricultural relief?

Answer 112

agricultural property” means agricultural land or pasture and includes woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture; and also includes such cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character appropriate to the property.(s115(2))

Question 113

Talk me through valuation for Saxon business park?

Answer 113

I valued an office fo capital gains tax purposes. I had to determine the market value as at 1991 and 2022. I researched into details of the property and found it was constructed in 1997. By researching into planning applications and internal survey details I discovered that as at 1991 the site was land. I had regard to agouctural and infustial land values at 1991 and applied hope value to my 1991 valuation. For 2022 valuation I had regard to the subject rent, comapatable sales, rents and yield evidence. I determined that the property was let at market rent and capitalised the rent into perpetuity. There investment method suggested £225,000 and the comparable suggested £205,000. I placed more evidence on the comparable method as yield evidence was poor in quality and upwards adjustment of yield brought the value down fairly significantly. I adopted a figure of £210,000.

Question 114

When was the market rent set?

Answer 114

September 2022

Question 115

How did you establish it was rack rented?

Answer 115

By looking at market evidence - comps

Question 116

Clent - I see you adjusted you comparables for size, condition, location, what other factors did you adjust for?

Answer 116

Age, grounds, number of bedrooms

Question 117

On the assumption rack rented, appropriate yield, what is an appropriate yield?

Answer 117

Regard to comparable evidence, quality of location, covenant, lease terms, use of property.

Question 118

Would discounts always apply when determining shares?

Answer 118

No, not if related property on partnership property. HMRC will look at if the discounts apply or not. They will look at who is inheriting and who owns the other half before applying dicsounts. Related property – if the property has to be valued together with related property and together the shares equate to an entirety interest then no discount should be made. (Section 15) Partnership property – if the share is held by a partnership then the discount should not normally exceed 10% even if it is a minority share. (See IHT Manual Section 19)