Matt - Capital taxation - Level 2

Question 1

Why was your valuation date 31st March 1982?

Answer 1

As instructed in the Finance Act 1988, instructed to value at this date was because of significant inflation and would be unfair to tax gains as a result of increase in general prices.

Question 2

How would you carry out a 1982 valuation?

Answer 2

1. Interrogate my firms records where possible
2. Auction records at the time from sources such as EIG
3. Refer to market records at the time where possible

Question 3

What comparables did you choose to value your 1982 valuation?

Answer 3

Similar detached dwelling properties in the locality to the subject that sold close to the valuation date

Question 4

How did you decide upon your final value?

Answer 4

Ultimately the returned figure fell within the valuation range. I decided to accept it for this reason because of such a historic valuation date, it’s difficult to make decisions on adjustments and condition with historic numbers and also that I’m not sure what the condition would be circa 40 years ago.

Question 5

On what basis was your West Bromwich industrial property held?

Answer 5

It appeared to be owner occupied as there were no formal lease details available

Question 6

How did you value your industrial in West Bromwich?

Answer 6

I valued this property by the investment method and using the capitalisation technique.

Question 7

Why did you value your property using the capitalisation technique of the investment method?

Answer 7

Because there were no income details from a lease, I could therefore only capitalise a predicted rental income in to a capital value for the property.

Question 8

Talk me through your approach for the capitalisation technique.

Answer 8

1. I used sources such as CoStar and EG Radius to find lease transaction details for similar industrials in West Bromwich to determine a suitable £/sqm rental value.
2. After finding suitable rental evidence I then used similar sources to determine sales evidence in order to arrive at a suitable yield for the YP perp calculation.

Question 9

What is a yield?

Answer 9

It is a measure of potential returns on investment from a rent

Question 10

What yield did you use for your capitalisation technique?

Answer 10

I used an all risks yield, a gross yield

Question 11

What is an all risks yield?

Answer 11

It is an umbrella term for growth implicit yields that reflects all the risks and rewards of the subject property.

Question 12

What is a growth implicit valuation?

Answer 12

This is where any potential growth in market rents or capital values are reflected in the yield

Question 13

What is a growth explicit valuation?

Answer 13

This is where any potential growth is reflected in the cash flow and is discounted at a higher rate of return

Question 14

What are some examples of growth implicit valuations?

Answer 14

1. Term and reversion
2. Hardcore and layer

Question 15

What is an example of a growth explicit valuation?

Answer 15

Discounted Cash Flow

Question 16

Is having a lower or higher yield better?

Answer 16

Lower. The higher the yield then the riskier the asset

Question 17

Were you valuing at the date of acquisition or disposal for your property in West Bromwich?

Answer 17

The date of disposal

Question 18

What determines whether you’re valuing at the date of acquisition or disposal?

Answer 18

Instructions from HMRC or Client

Question 19

Were you valuing at the date of acquisition or date of disposal for your 1982 residential valuation?

Answer 19

Date of disposal which was April 2022

Question 20

If the date of disposal was April 2022, why did you value as at 31 March 1982?

Answer 20

Because the date of acquisition would have been before 31 March 1982 hence why this becomes the date of valuation

Question 21

How did you know what you were valuing with such a historic valuation date?

Answer 21

I had regards to any information that the taxpayer or client sent in regarding the property at the valuation date, as well as sourcing through my firms records

Question 22

Was your 1982 property tenanted?

Answer 22

There were no information available or details provided by the client or taxpayer that the property was tenanted.

Question 23

If the property was tenanted, how would that have affected your 1982 valuation?

Answer 23

I would have regard to whether the tenancy was a protected tenancy under the Rent Act 1977.

Question 24

What is a protected tenancy?

Answer 24

A tenancy under the Rent Act 1977 giving a tenant security of tenure and access to a fair rent.

Effectively it protects a tenants occupation

Question 25

How would a protected tenancy affect your valuation?

Answer 25

I would say that it would reduce the valuation of the property due to the security of tenure aspect and difficulty in gaining vacant possession.