Valuations for inheritance tax

Here, the customer will be seeking a modest valuation, a valuation that takes into account all impediments of the property, the true condition and work required. A good Chartered Valuation Surveyor will not be taking an ‘overall’ view of the property but looking at what is the normal standard for a property to command best price, e.g.; it is the norm for modern central heating to be installed and a fully fitted kitchen and will then seek to discount both the cost of fitting normal modernisation as well as an allowance for profit, time and trouble to do so. Other factors may include where the property has not been decorated or refurbished for some time, then there are more likely to be concealed defects such as unventilated floor voids, timber and damp problems all of which can be expensive to treat.

The Valuation Surveyor may have to take into account apportioning the value of properties held as ‘tenants in common’ or ‘joint tenants’ and any respective shares or where a property was separately lived in but not physically divided. Agreed valuation principles enable the valuer to apply an undivided shares discount of 10% where the property is jointly owned. Tenancy structures in place may also have a significant impact on the valuation should say a family member be living in the property under a ‘lifetime tenancy’ or the property be subject to a Rent Act protected tenancy. The valuation date will be set as the date of death.

Capital gains tax valuations

Assuming the asset disposal date is at ‘market value’ then the valuers job is to establish the base cost from which indexation and capital allowances are to be applied.

The RICS* International Valuation Standards define market value as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”

Market value is a concept distinct from market price, which is “the price at which one can transact”, while market value is “the true underlying value” according to theoretical standards. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail. So the Chartered Valuation Surveyor also will be looking for conditions that render the disposal price above market value, such conditions could be ‘a special purchaser’ a ‘merger of land interests’ or just temporary market overheating or temporary shortage of supply.

For a Chartered Valuation Surveyor to assess the base price from which indexation is to be applied you will definitely need to select a local Valuer who actually holds historic records of property transactions at the base value date values. The base valuation date may well be 1982 or 1965 depending on when the property was acquired.

Rating and tax valuations

ultimately rating and tax valuations have to be negotiated with the Valuation Office Agency who will be instructed by HMRC. Where the valuation remains unagreed then the Valuer will need familiarity and expertise at preparing representations for the Tribunal hearing.

The geographical areas that Ringley’s Valuation Team hold retrospective property transaction data for covers Hampstead, Belsize Park, Highgate, Holloway, Kings Cross, St Pancreas, Kentish Town, Mornington Crescent and Camden Town. We have some data outside these periphery areas and would always want to validate that we have sufficient evidence to assist you before taking an instruction on.

What is a valuation for tax purposes?

A valuation for tax purposes is an estimate of the market value of a particular asset or group of assets on a specific date. This value is used to determine the taxable gain or loss on the sale of an asset, or to value the assets for estate and gift tax purposes.

The IRS uses three main methods to calculate the market value for tax purposes: the cost, replacement, and income methods. The cost method is based on the original purchase price of the asset, while the replacement method takes into account the current cost of replacing the asset. The income method uses estimated future income to calculate the present value of the asset.

The most common type of assets valued for tax purposes are properties, stocks, and bonds. However, any type of asset can be valued, including businesses, patents, and artwork.

When is a tax valuation Necessary?

A tax valuation may be required when an individual sells an asset, transfers it as a gift, or estates it. The most common time for a tax valuation is when a person sells their home. However, the IRS can also require a valuation when assets are transferred between family members or when the value of an estate is above a certain threshold.

How is the tax valuation Calculated?

The market value of an asset for tax purposes is calculated using one of the three methods mentioned above. The method that is used is based on the type of asset and the information available. Generally, the IRS will use the cost method if the asset is a capital asset, such as stocks or bonds. If the asset is real estate, the replacement method is more likely to be used, and if the asset is a business, the income method will be used.

The market value calculated using one of the three methods is then adjusted to reflect any applicable discounts or premiums. For example, if an asset is subject to a gift tax, the market value will be reduced by the gift tax exemption amount.

What are the Advantages and Disadvantages of tax valuation?

The main advantage of a tax valuation is that it ensures that the correct taxable amount is reported on a sale or transfer of assets. This can help to avoid penalties from the IRS and ensure that the correct tax is paid.

The main disadvantage of a tax valuation is that it can be time consuming and expensive to complete. In addition, the market value calculated using one of the three methods may not be accurate, particularly if the asset is unique or there is limited information available.

How often is a tax valuation Updated?

A tax valuation should be updated whenever there is a significant change in the value of the asset. This could include changes in the market conditions, the asset's use, or new information that becomes available. Generally, the IRS recommends updating a tax valuation every three years.

Valuations for property transferred under
the ‘lifetime gift’ scheme

This is another type of inheritance tax valuation that occurs should the donor who gifts a property to the inheritor die before the ‘lifetime gift’ period expires. Essentially good tax planning provides that should a donor gift an asset whilst he or she is still alive then for each surviving year that both the donor and the inheritor are alive the tax burden reduces on a sliding scale depending on the number of years the donor survives after the gift.