Valuation Office Agency
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Market value
7.1 Definition
There are a number of occasions where the market value of an asset on a particular date is required for Capital Gains Tax purposes. Market value is defined in s.272 as the price which those assets might reasonably be expected to fetch on a sale on the open market and, no reduction shall be made on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time. This definition is similar to that used for IHT purposes and is further considered in Inheritance Tax Manual: Section 7 and Practice Note 1.
7.2 Date of valuation
The Inspector will always inform the DV as to the date of valuation. Generally this will be either a statutory date ie 31 March 1982 or 6 April 1965, or where an asset is acquired or disposed of under a contract, the date of contract and not, if different, the time at which the asset is conveyed or transferred (s.28 TCGA 1992). A variation is where the contract is conditional on the exercise of an option. In these circumstances the valuation date is that on which the condition is satisfied (s.28(2)).
7.3 Reason for valuation as at 31 March 1982
The requirement for a market valuation as at 31 March 1982 is found in s.35(2) TCGA 1992, viz: it shall be assumed that on that date, the asset was sold by the person making the disposal and immediately re-acquired by him at its market value on that date. Similar provisions for indexation allowance are included in s.55(2) TCGA 1992.
7.4 Acquisition on death -Valuation ascertained for Inheritance Tax (IHT)
If an asset is acquired on death the acquisition cost may be determined by s.274 TCGA 1992 which says:
Where on the death of any person inheritance tax is chargeable on the value of his estate immediately before his death and the value of an asset forming part of that estate has been ascertained (whether in any proceedings or otherwise) for the purposes of that tax, the value so ascertained shall be taken for the purposes of this Act to be the market value of that asset at the date of the death.
HMRC consider that a value is ascertained if the valuation is used to arrive at a charge to IHT and the amount of the liability was dependent on the valuation.
If the valuation returned on death does not affect the amount of any IHT (for example because 100% Agricultural Relief is applicable, or the estate is sub-threshold) then the value is not regarded as having been ascertained.
If a figure is reported by the taxpayer as being the IHT figure HMRC will check whether the value has been ascertained.
If the value has not been ascertained for IHT the basis of valuation to be adopted is as set out in s.272 TCGA 1992 and normal CGT valuation principles apply, but see paragraph 7.28 regarding undivided shares.
If a value has been ascertained for IHT an apportionment may be required. This may arise where there is a part disposal and the taxpayer does not wish to apply the statutory part disposal formula, or when separate assets have been grouped together for valuation purposes and a single value ascertained for IHT.
Condition of property
7.5 General
An asset will normally be valued as it exists at the valuation date. The valuation should therefore reflect the physical condition of the property, the state of the locality and any encumbrances, tenancies, etc, as they existed at the valuation date(s).
7.6 Incomplete building work
An exception to the general rule may arise in cases involving the valuation of development sites or properties where building work is incomplete at the valuation date;
a) Where a taxpayer makes a gift or transfers a property to a connected person the DV may be asked for the market value at the date of disposal. If before the date of disposal the taxpayer has entered into a binding contract for development or improvement works to be carried out it will be necessary to ascertain what has been agreed between the parties so that the precise asset transferred can be identified:-
i) If the property has been transferred with the benefit of the contract but with the transferee responsible for the cost of completing the building work then the valuation should normally be approached on the following basis:-
Notional value when completed =
Less
1. Cost of completion payable under the building contract =
2. Allowance for deferment risk and foregone interest = =
Value at relevant date =
In cases where the building work (or part of the building work) is being carried out with the benefit of an improvement, repair or similar grant under Part VIII of the Local Government and Housing Act 1989 (or similar earlier provisions), this would be a factor which should be taken into account when making the deduction for the cost of completing the work. The valuation should also have regard to the potential liability to repay the grant should a sale take place within a certain length of time.
(ii) If the work is to be completed at the transferors expense then the valuation should normally be approached on the following basis:-
Notional value when completed =
Less
Allowance for deferment, risk = and foregone interest
Value at relevant date =
In cases where the building work or part of the building work is being carried out with the benefit of an improvement, repair or similar grant, the valuations should also have regard to the potential liability to repay the grant should a sale take place within a certain length of time.
b) When valuing:-
(i) a property as at 31 March 1982 for indexation and rebasing (or as at 6 April 1965 for a deemed acquisition cost), or
(ii) a part of the property retained by a taxpayer following a part disposal,
the asset to be valued will be the property together with the benefit of any binding contract for development or improvement work entered into before the valuation date. In such cases the valuation should normally be approached on the same basis as in paragraph (a)(i) above.
c) In any case where there is no binding contract in existence at the relevant date (for instance if the work was being carried out by the taxpayer in person) then the general rule of valuing the property as it existed at the valuation date will apply.
In any of the above cases the DVs report to the Inspector should explain the circumstances and the valuation approach that has been adopted.
Tenure
7.7 General
Guidance on the identification of the various types of tenancies and licences that may have been in existence on 31 March 1982 is contained in Practice Note 1. A summary of the current law is contained in Inheritance Tax Manual, Practice Note 3.
It should be noted that the assumed preliminary arrangements for the hypothetical sale do not extend to the extinguishment of a tenancy held by a company even if the taxpayer was a controlling shareholder. (See Henderson (HMIT) v Karmels Executors (1984)).
Liabilities
7.8 Subsisting charges transferred (s.26)
Where an asset is transferred subject to a subsisting charge (eg mortgage) it is to be valued as having been disposed of free of the charge. (The effect of the charge will be a matter for the Inspector to deal with). Where a valuation is required for example on a deemed disposal or gift, the interest in question should be valued free from any such charge registered against it.
7.9 Contingent charges transferred
If an interest is subject to a contingent charge which is taken over on acquisition or transferred on disposal (eg registered planning compensation) the valuation should reflect the existence of the liability.
7.10 Contingent charges not transferred (s.49)
Where the transferor retains or assumes a contingent liability no allowance will be made on that account, in the first instance, in the computation of the gains. If, at some future time, the liability is enforced any expenditure incurred by reason of its enforcement will be allowed to the taxpayer and any gain (or loss) will be recomputed.
Valuations for part disposals
7.11 General
The basic rules for part disposals are set out in Section 5 and DVs will normally be required to supply the market value of the retained interest for use in the part disposal formula.
7.12 Physical division of original unit
Where there is a physical severance of an original unit of acquisition eg the sale of a field from a farm which had been acquired as one unit, the valuation required (unless the separate asset basis has been adopted) is the market value at the relevant date of the remainder ie that part of the original unit of acquisition which remains unsold.
7.13 Other part disposals
Where an interest in, or right over, an asset is disposed of (eg by the grant of a lease at a premium, or of an easement, the release of a restric