Inheritance Tax: the importance of formal valuations
Mon 2 December 2019
Toby Perry MRICS of Stags Professional Services department in Exeter outlines the importance of formal valuations against market appraisals when it comes to tax planning.
A lot of our time as Chartered Surveyors is spent carrying out formal red book valuations for purposes such as Inheritance Tax, Capital Gains Tax and secured lending. These valuations can be relied upon and the authors are accountable; stringent requirements are laid down by the Royal Institution of Chartered Surveyors in the preparation of the valuation report and they should not be confused, as we often find, with market appraisals. A market appraisal is essentially a guide price for marketing purposes is not accountable. This guide price can be skewed by a number of factors, including vendor's expectations, method of sale (private treaty, tender, auction), poor research and a desire by the agent to get the property on their books.
Of particular importance in the rural sector, and those that specifically have an impact on farming families, are formal valuations for Inheritance Tax (IHT) purposes, or, as they are sometimes referred to as probate valuations. More often than not, a farmhouse will form part of a larger farm valuation. As residential house prices have increased significantly over the years the value of a farmhouse is likely to make up a large proportion of a valuation. Increasingly, we continue to see HMRC being more interested in raising tax from assets that are being passed between generations than they were 10 or even five years ago. As asset values have increased, so too of course has the potential amount of tax that can be clawed into the coffers. Agricultural Property Relief is only available on the agricultural value of the farmhouse and therefore it is becoming more and more common for the District Valuer, on behalf of HMRC, to assess the valuations put forward at probate. In farming cases, if they feel that the valuation figures are questionable or that the deceased was not an active farmer, they may well delve deeper.
Although some valuations pass through the system without question, others are not quite so straightforward and require detailed discussions with the District Valuer. There are often tens, if not hundreds of thousands of pounds at stake, which is where a well-prepared written report backed up by comparable evidence and an understanding of both the market and legislation is essential in negotiating to the taxpayer’s advantage.
If you require a formal valuation, or advice on tax planning or further information please do not hesitate to contact Stags Professional Services department today.