Inheritance Tax Manual

Section 25: lotting of Items

The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.

25.1 General

This Section refers to the factors to be taken into consideration and the procedure to be adopted where the DV feels that the lotting of properties adopted by the parties on Form D12 or equivalent (see Section 26 para 26.17) is inappropriate for valuation purposes.

Lotting of properties should not be confused with valuation in aggregate. (i.e. where the values for all properties transferred can be agreed or accepted but the value of individual items cannot). Valuation in aggregate is covered in Section 27 para 27.71.

The approach to prudent lotting

25.2 General concept

The need for the proper lotting of items for valuation purposes arises from the statutory assumption that the value of any property shall be the best price which it might reasonably be expected to fetch if sold in the open market at the relevant time. The price obtainable for an estate may depend on how it is sold, i.e. whether it is sold in one or several lots (see Section 7: para 7.4 and Practice Note 1: para 3).

Therefore, in cases where the parties have returned separate values for individual properties, the DV should consider whether the value of the estate would be increased if two or more of these items were to be grouped together for valuation purposes. This process is known as “grouping”.

Alternatively, there will be instances where the parties have returned a single value in respect of a number of individual properties and here the DV will need to consider if a better price could be obtained if each item were to be valued separately.

25.3 Importance of grouping

Where the caseworker is of the opinion that a different system of lotting to the one returned by the parties is appropriate, the main practical problems arise when grouping is involved. This is because, if the parties’ lotting is accepted but increases are reported for some or all of the items, it would then be possible for the parties to give Notice of Appeal in respect of selected items. As a result the value of the selected items could not be properly tested before the Lands Tribunal since they could not be sold except with some or all of the items not appealed against.

It should be noted that no such problem arises when the parties’ lotting is split for valuation purposes.

25.4 Specific examples of grouping

Examples of cases where the parties have incorrectly itemised or lotted an estate, and where grouping is therefore appropriate are as follows:-

a) Where the total value of the individual items selected by the parties is less than the value of the estate taken as a whole - e.g. where a farm and its farmhouse are valued separately. In large estates there may also be instances where, although some of the items would sell at enhanced prices as separate lots, the consequent injury to the remainder of the estate would result in an overall reduction in its value;

b) Where the division is artificial insofar as the items selected are unsaleable in isolation - eg, where the forecourt of a petrol filling station is valued separately from its associated buildings;

c) Where the items are individually saleable but where a better price might be realised in the open market if they were offered for sale in one lot - e.g a block of residential ground rents.

Reports and procedure

25.5 Parties to be advised of groupings adopted

Where, for valuation purposes, it is proposed to either group or split items which have been returned as individual, the caseworker should proceed in accordance with the standard procedures set out in Section 27. However, the groupings adopted should be clearly indicated to the parties when notifying them of the DV’s valuation on form VO 1101 (see Section 27 para. 27.36).

For Prior Agreement see para 25.9 below.

25.6 Completion of Part 2 of VO 1110

Any grouping adopted should be clearly indicated when completing Part 2 of VO 1110 in accordance with Section 27 para 27.61 et seq.

Similarly when any item returned by the parties has been split for valuation purposes, the individual valuation units adopted should be clearly shown on Part 2 of VO 1110.

25.7 Properties for which separate values must be reported

Separate values must be reported on Part 2 of Form VO 1110 for:-

a) Leaseholds (see para 25.8 below);

b) Property which HMRC(IHT) expressly ask to be valued as a separate item.

25.8 Leaseholds

If any of the items which have been grouped for valuation purposes in accordance with paras 25.3 and 25.4 above comprise leaseholds, the value assigned to each leasehold item should be apportioned out of the total value of the group.

25.9 Prior agreement

When approached by the parties to agree values prior to the rendering of the account (see Section 31 para 31.16) care should be taken to act on the principles laid down in paras 25.2 - 8 - above with a view to ensuring that the agreed value of the property transferred represents the market value of the property as lotted for sale by a prudent vendor.