Matt - Capital taxation - Level 2 Flashcards
Why was your valuation date 31st March 1982?
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.
How would you carry out a 1982 valuation?
- Interrogate my firms records where possible
- Auction records at the time from sources such as EIG
- Refer to market records at the time where possible
What comparables did you choose to value your 1982 valuation?
Similar detached dwelling properties in the locality to the subject that sold close to the valuation date
How did you decide upon your final value?
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.
On what basis was your West Bromwich industrial property held?
It appeared to be owner occupied as there were no formal lease details available
How did you value your industrial in West Bromwich?
I valued this property by the investment method and using the capitalisation technique.
Why did you value your property using the capitalisation technique of the investment method?
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.
Talk me through your approach for the capitalisation technique.
- 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.
- 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.
What is a yield?
It is a measure of potential returns on investment from a rent
What yield did you use for your capitalisation technique?
I used an all risks yield, a gross yield
What is an all risks yield?
It is an umbrella term for growth implicit yields that reflects all the risks and rewards of the subject property.
What is a growth implicit valuation?
This is where any potential growth in market rents or capital values are reflected in the yield
What is a growth explicit valuation?
This is where any potential growth is reflected in the cash flow and is discounted at a higher rate of return
What are some examples of growth implicit valuations?
- Term and reversion
- Hardcore and layer
What is an example of a growth explicit valuation?
Discounted Cash Flow
Is having a lower or higher yield better?
Lower. The higher the yield then the riskier the asset
Were you valuing at the date of acquisition or disposal for your property in West Bromwich?
The date of disposal
What determines whether you’re valuing at the date of acquisition or disposal?
Instructions from HMRC or Client
Were you valuing at the date of acquisition or date of disposal for your 1982 residential valuation?
Date of disposal which was April 2022
If the date of disposal was April 2022, why did you value as at 31 March 1982?
Because the date of acquisition would have been before 31 March 1982 hence why this becomes the date of valuation
How did you know what you were valuing with such a historic valuation date?
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
Was your 1982 property tenanted?
There were no information available or details provided by the client or taxpayer that the property was tenanted.
If the property was tenanted, how would that have affected your 1982 valuation?
I would have regard to whether the tenancy was a protected tenancy under the Rent Act 1977.
What is a protected tenancy?
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
How would a protected tenancy affect your valuation?
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.
