Capital Taxation - Level 3 Flashcards
Tell me about the house in Knebworth?
- I valued a house with 3.5 acres of land for IHT purposes.
- The returned value seemed too low when looking at comparables
- I also was considering the potential hope value.
- Having inspected the property i was of the opinion that the returned value was too low.
- I contacted the executor to inform him of my opinion of value, taking into consideration the size, potential and evidence.
- After negotiations i reached an agreement and i was able to report a higher value to HMRC which was in line with the condition and characteristic of the property
What is Hope Value?
Hope value is the value based on the expectation that land will get permission for development in the future, meaning that it is likely to be worth more.
Knebworth – Why did you think there was hope value?
As there was 3.5 acreas of land it suggested there was development potential.
On inspection i noted that the property was in need of modernisation and had the consideration that a potential buyer would spend money to improve the property and even the potential to increase the value
Knebworth – What considerations did you take?
Planning permission - what would likelihood of them recieving permission
Location
Comparable evidence
Knebworth – What was the construction of the property and condition.
5 bed deatched property. Cavity wall construction, pitched roof, double glazed windows
Knebworth – how did you source your comparables given the large land coverage?
I looked at external sources such as Rightmove, and our internal data system
Knebworth – What potential for hope value did you advise there was?
- Based on the fact that the property had a large plot of land, I advised that there was potential to build onto the property based on the property down the road who received planning permission for works
- I advised the client a potential buyer would likely develop on the land to achieve a higher value.
- Based on the comparable evidence a larger property would have achieved a higher value
Knebworth – Talk me through your comparable evidence and how you arrived at your valuation.
When searching for the comparable evidence, my main focus was to find comparables with a similar size land in order to get a better understanding of the values.
After looking at the comparable evidence i was able to advice HMRC of my approporate value.
Knebworth – how did you value the land for IHT purposes?
- I started by looking at comparable evidence, then when i decided there was planning permission, i carried out a residual valuation. Based on my evidence i advised the executor of my opinion and then advised my client my value.
Knebworth – Why did you think the returned value was too low?
When looking at the size of the land and the size of the property, during my desk based research the returned value seemed to be low.
Knebworth – How did you advise on the characteristics and condition of the property?
During my inspection, i made notes of the construction and condition in order to reflect it in my valaution.
Knebworth – How did you advise on your opinion of value?
I first prepared my opinion letter which included the facts that i found during my inspection. I then provided my comparable evidence. I then invited the executor if they would like to provide any evidence that i should consider, if they felt it was necessary.
Knebworth – What informed your valuation advice?
What informed my valuation advice was based from my desk based review, inpection and post inspection research.
I considered the subject property condition, size, specification, land, hope value, planning permission
Knebworth – What did you advise in terms of potential?
- based on the the fact that the property had 3.5 acres of land i was of the opinion there was hope value as advised the executor that a potential buyer would likely develop the proeprty to achieve a higher value.
Kent - Tell be about this case?
- I valued a house for Capital Gains Tax purposes.
- The instruction was to value two semi detached houses as one as they were merged.
- I discussed the case with a senior surveyor
- converting the property back into two dwellings should not be too high
- I made a 15% deduction for the chance of not getting planning permission.
- I then advised HMRC that the returned value was too low, and what the approporiate value should be
Kent – Why did you consider the cost of converting back to two
dwellings, when the instruction was to value as one?
Based on case law, we can consider Prudent Lotting which means a hypocritical seller would sell his property to achieve the highest price which would either be buy selling as a whole or breaking up the proeprty to acheieve the highest price
Kent – Why did you make a deduction of 15%
I made the deduction for the chance that they don’t receive planning permission
Kent – how did you value given the CGT purpose?
Market value
Kent – How did you advise on the conversion costs?
I discussed with a senior surveyor and looked at BCIS
Kent - what case law did you apply?
Fifield v Commissioners of Inland Revenue (1972) (EG vol. 227 p2057)
Kent – How did you apply the Fifield case?
I applied this case as this case gave the 15% deduction for not having planning permission which applied to the subject.
Kent – How did you advise on the returned value?
I advised that the property should not be valued as 1 house and should actually be valued as 2 semi detached houses as it will achieve a higher value
Kent - Why did you consider the cost of converting back to two dwellings, when the instruction was to value as one?
- Based on the consideration that a hypothetical buyer would convert the property into two semi-detached houses to achieve a higher value
Ealing – talk me through your desktop valuation.
- At the start I completed my conflict and interest checks and ensured I was competent to carryout the valuation
- I then started to look for comparables to determine the value of the property.
- Based on the comparables, I was of the opinion that the returned value was too high so I contacted the solicitor to arrange an inspection so I could gather my facts
