Capital Taxation Level 2

Question 1

Residential - Uttoxeter
Why did you have to value to a historic valuation date of 1997?

Answer 1

This was the instruction from the client.

A valuation at this date was required as the property was a gift and since been disposed of. HMRC needed to calculate the gain between acquisition date and disposal date.

Question 2

Residential - Uttoxeter
What is market value for Capital Gains purposes?

Answer 2

The amount an asset would sell for on the open market but not reducing for all of the assets being placed on the market at the same time.

Question 3

Residential - Uttoxeter
Why did you assume the property was in a reasonable state of repair at the valuation date?

Answer 3

As I did not have any useful evidence to go on and my records showed no changes to the property.

Also, there was no instruction to value as if the property was anything other than in a reasonable state of repair.

Question 4

Residential - Uttoxeter
What external sources did you use to find your evidence?

Answer 4

Mainly Eig auctions as there is limited online information.

I also used VOA’s internal database as we had some historic sales information and previous valuations for similar properties.

Question 5

Residential - Uttoxeter
Are there any limitations to using Eig auctions?

Answer 5

Yes, the sales could be not open market value.

Also, auctions can sometimes be seen as forced sales so not to market value.

Question 6

Residential - Uttoxeter
Did you rely on the previous valuations for similar properties?

Answer 6

No, there were used as a guide for value for comparables in the locality.

This is in line with RICS comparable evidence in real estate,

Question 7

Residential - Uttoxeter
Did the taxpayer provide their own evidence?

Answer 7

No, they just provided an estimate. My evidence agreed with their opinion of value.

Question 8

Retail - Stoke
What is the definition of market value for IHT purposes and where is it found?

Answer 8

The amount an asset would sell for on the open market at the valuation date but not reduced for all of the property being placed on the market at the same time. (Flooding of the market)

Question 9

Retail - Stoke
Why did you use the investment method of valuation?

Answer 9

Due to the nature of the property being retail which is commonly valued under the investment method.

I also needed to account for the passing rent on the property.

Question 10

Retail - Stoke
Are you competent to advise on the covenant strength of occupiers?

Answer 10

Not from a landlord looking for a tenant perspective. However, I had regard to the covenant strength when ascertaining market rent.

Question 11

Retail - Stoke
How did you assess covenant strength?

Answer 11

I has regard to Dunn & Bradsheet which shows covenant strength. I also had a look at companies house to see the strength of the company.

Question 12

Retail - Stoke
Talk me through your term and reversion valuation?

Answer 12

• I ascertained the market rent using the comparable method.
• I had regard to the current lease and found the property was under-rented.
• I first valued the passing rent to the break in 1.5 years. I capitalised the passing rent by an appropriate yield to get the term.
• I then capitalised the market rent into perpetuity, deferred by 1.5 years to the break.
• Added the two together to get my capital value.
• Stood back and looked to ensure the valuation was reasonable.

Question 13

Retail - Stoke
What yield did you adopt in your valuation?
What are typical yields for shops in this area?

Answer 13

I adopted a gross yield for the reversion to market rent.
I reduced this for the term to reflect less risk for the passing rent.
I adopted an 11% yield and this was common for shops in the area.

Question 14

Retail - Stoke
Did you accept the returned value?

Answer 14

No, myself and the client agreed a figure of £110,000 after negotiations

Question 15

Residential - Lichfield
What was the construction of the property?

Answer 15

Traditional brick and tile in a reasonable state of repair.

Question 16

Residential - Lichfield
Why did your client request a valuation at 31 March 1982?

Answer 16

The property was acquired in 1969, therefore, we have to use the rebasing date to value the property.

Question 17

Residential - Lichfield
Why is there a rebasing date for CGT?

Answer 17

• Due to the volatility of the market in the 70s and a sharp rise in values.
• This makes it fair for the taxpayer and means the gap is likely to be much less and tax implications reduced.

Question 18

Residential - Lichfield
Does it make any difference if the ratepayer does not return a figure?

Answer 18

Not in terms of my role. I still value the property and provide a good quality and diligent service.

It means the taxpayer cannot negotiate the market value reported.

Question 19

Residential - Lichfield
Why did you assume the property was in a reasonable state of repair

Answer 19

As this is the most reasonable approach in the absence of evidence to the contrary.

No indication of state of repair was submitted by the client or the taxpayer.

Question 20

Residential - Lichfield
What adjustments did you make to the evidence?

Answer 20

Locality, age, size, accommodation, state of repair.

I also adjusted for valuation date given the limited available evidence as close as possible to 31 March 1982.

Question 21

Residential - Lichfield
How is capital gains calculated and charged?

Answer 21

Disposal price - acquisition price = capital gain (purchasers costs can be taken account of)

Charged at lower income rate:
10% - commercial
18% - residential

Charged at higher income rate:
20% - commercial
24% - residential (April 24)
28% - residential (Pre- Apr 24)