Q&A - Capital Gains Tax & Property Valuation 

ANSWER

The Tax Office looks for a formal valuation under the Red Book by a Certified Valuer. That Valuer must  determine the market value of the interest in the property as at the relevant date incorporating any tenancies, licensees or any other factors that might influence the value.

So what is “ market value “

The answer lies in the Red Book – The RICS Valuation Standards 2014 edition. Also in the Taxation of Chargeable Gains Act 1992.

As per the Red Book :

These definitions are written in similar terms and broadly define market value as:

‘the price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time.’

Also:

Under the Valuation Standards of the Royal Institution of Chartered Surveyors the definition of market value for CGT tax valuations is:

·         The sale is a hypothetical sale.

·         The purchaser is a hypothetical, prudent and willing party to the transaction (unless considered a special purchaser).

·         For the purposes of a hypothetical sale, the vendor would divide the property to be valued into whatever natural lot would achieve the best overall price.

·         All preliminary arrangements necessary for the sale to take place have been carried out prior to the valuation date.

·         The property is offered for sale on the open market by which ever method of sale would achieve the best price.

·         There is adequate publicity or advertisement before the sale takes place so that it is brought to the attention of all likely purchasers.

·         The valuation should reflect the bid of any special purchaser in the market (provided they are willing and able to purchase)

The vital point is that the Valuer must explain how the valuation figure was reached and must retain the file with all the workings, analysis and comparable evidence gathered. The valuation may not be challenged for many years after it is done !

David Toogood, Harding Surveyors