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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Assets: principles of valuation: valuing assets collectively

The decision of the Court of Appeal in Gray (surviving executor of Lady Fox deceased) v IRC [1994] STC360 may in some cases have implications for the valuation of assets for the purpose of Capital Gains Tax.

The Gray case concerned the valuation of assets for what is now Inheritance Tax (IHT) but was at the material time Capital Transfer Tax (CTT). There is an introduction to IHT at CG10280+ and Appendix 4 tells you where more detailed guidance can be found.

Section 4 IHTA 1984 deems a transfer of value to have been made for the purpose of CTT/IHT immediately before death equal to the value of the deceased’s estate at that time. Section 5 IHTA 1984 defines a person’s estate as ‘the aggregate of all the property to which he is beneficially entitled’. And Section 160 IHTA 1984 provides that ‘the value of any property at any time is…the price which the property might reasonably be expected to fetch if sold in the open market at that time’.

The main question in Gray was whether two items of property comprised in the deceased’s estate must be valued separately or whether they could be lotted together as one unit for valuation under Section 160 IHTA 1984.

The principle that emerges from Gray is that two or more different assets comprised in an estate can be treated as a single unit of property if disposal as one unit was the course that a prudent hypothetical vendor would have adopted in order to obtain the most favourable price without undue expenditure of time and effort. However, the important point to note is that in IHT cases it is necessary to value the deceased’s entire estate but in Capital Gains Tax cases (subject to the exception mentioned in CG16380), it is only necessary to value the asset or assets that are included in the disposal. In Capital Gains Tax cases it is generally not appropriate to lot the asset, or assets, included in a disposal together with other assets that , although part of the vendor’s estate, were not included in the disposal.