CG74200 - Land: valuation: basis of valuation: asset to be valued
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Introduction
This guidance considers the basis and types of valuation of land.
In particular it considers the requirements for valuation when the nature of the land has changed, say from a tenanted property to vacant possession.
It then considers the concepts of ‘entirety’ and ‘undivided share’ on ownership of land and their effect on valuation.
Finally, it considers the basis on which referral to the Valuation Office Agency is required and where multiple referrals will be required.
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Nature of the asset
Asset held at 31 March 1982
When a valuation is required at 31 March 1982, for rebasing or for indexation, the value to be obtained is the price which would be received if the asset held by the customer at that date were to be sold on the open market.
It is important to note that it is the asset as it stood at 31 March 1982 which is to be valued. This principle applies even if the asset is in a different state at the date of disposal. This is illustrated below.
Land held subject to tenancy
In general, an interest in land which is held subject to a tenancy will be less valuable than one which is held with vacant possession. For that reason the owner of a piece of land will frequently take steps to secure vacant possession before sale.
It is sometimes argued that because the property was sold with vacant possession it should be valued in that state at 31 March 1982 even if it was in fact tenanted. It may be suggested that it is reasonable to value on a like-for-like basis.
This argument is incorrect and should not be accepted. The purpose of rebasing and, where due, indexation is to eliminate any gain which is attributable to inflation. It does not protect a gain which is attributable to securing vacant possession.
The land should be valued subject to the tenancy, see Henderson v Executors of David Karmel (deceased) 58TC201.
Types of land interest
A person may hold an interest in land in one of two ways. Either:-
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they alone are the freeholder or leaseholder of a separately identifiable parcel of land. This is called an interest in the ‘entirety’ of the land, or
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they own or lease a parcel of land together with others. This is called an ‘undivided share’ in the land.
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Entirety
Usually a person who owns or leases a parcel of land in its entirety will be the only disposer and their type of holding will be readily identified. However two or more owners may join together to sell their interest in different parcels of land in one transaction. This does not affect the type of holding each has and each parcel of land should be valued as a separate asset.
An example would be three individuals who each owned a field adjacent to the others. They may join together to sell the three fields in one deal to a developer. However each makes the sale as owner of their field, not as owner of an undivided share in all three fields.
Alternatively owners of different interests in the same parcel of land may join together to sell to one purchaser. An example would be the freeholder and leaseholder of an office block selling their respective interests to a buyer in one transaction.
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Undivided shares
Where land is held in undivided shares all of the owners or leaseholders have a shared interest in the land. None holds any part of it to the exclusion of the others.
For valuation purposes the asset to be valued is the customer’s interest. Because an undivided share is often less saleable than an entire interest the valuation may be discounted to reflect this.
An example of land held in undivided shares would be three individuals who together inherited a parcel of land consisting of three fields. When they sell to a developer each sells as owner of an undivided interest in all three fields.
Exceptions
It should be noted that land held in undivided shares is not always to be valued on an undivided share basis. It is necessary to identify, as at each date for which a valuation is required, the asset which the owner has. Jointly held land is to be valued on the ‘entirety’ basis in the following circumstances.
Partnership assets - Statement of Practice D12
Where land is held as a partnership asset, requests for valuations should continue to be made on the basis that each partner’s asset is a fraction of an entire asset. This follows the treatment set out in Statement of Practice D12; see CG27250.
Acquisition following death - TCGA 1992/S62
On a person’s death land may pass to two or more legatees. However it passes first, by virtue of Section 62 (1), to the personal representatives and then to the legatees. The legatees are then deemed to acquire the property at the same value and the same time as the personal representatives, Section 62 (4). It follows that if two or more legatees acquire ownership of land together, they acquire their respective interests at a value equal to a proportionate part of the entirety value.
Absolute entitlement - TCGA92/S71 (1)
Where assets are held in trust a deemed disposal and reacquisition occurs when the beneficiaries become absolutely entitled to the assets; see CG37100P. Because the trustees, and not the beneficiaries, make the deemed disposal and reacquisition any land held in its entirety by the trustees should be valued on that basis. Reacquisition by the trustees is as bare trustee for the beneficiaries. It follows that if two or more beneficiaries become absolutely entitled to land as against the trustees they acquire their respective interests at a value equal to a proportionate part of the entirety value.
Death of life tenant - TCGA92/S72
Where assets are held in trust and a life tenant, with an interest in part of the income only, dies, and the property continues to be settled property, any land comprised in the trust assets is to be valued as an entirety, and a fractional share deemed to be reacquired at market value; see CG36450P, in particular CG36470 onwards.
From what is said above it follows that valuations of the same asset may be required on different bases. For example, if the interest in the land was acquired before 31 March 1982 in one of the exceptional circumstances listed above the valuation at 31 March 1982 will still be on the undivided share basis.
Spouses or civil partners
Spouses or civil partners are separate persons for Capital Gains Tax and their gains are to be computed separately. Where they are joint owners of a piece of land you should ask the Valuation Office Agency to value each of their undivided shares except when the valuation falls within one of the exceptions above.
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Example
A and B inherit land in equal shares on the death of their parent in 1979.
In 2019, B gifts their 50% interest in the land to their daughter C.
Acquisition in 1979
The land was acquired from the personal representatives at their acquisition value, as at TCGA92/S62(4).
A and B therefore each have an acquisition cost equal to 50% of the ‘entirety’ value of the land at the date of death.
Deemed disposal and acquisition on 31 March 1982 for rebasing purposes
TCGA92/S35 (2)
At 31 March 1982, A and B are each deemed to sell and reacquire their own asset. This asset is an undivided 50% share of the land, the value of which is likely to be lower than 50% of the entirety value at the same date.
Non-arm’s length disposal in 2019
This disposal is to a connected person so the market value of the land is substituted for any consideration actually paid, TCGA92/S18 and TCGA92/S17.
B has disposed of their own asset, an undivided 50% share in the land, the value of which is likely to be lower than 50% of the entirety value at the same date.
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Referral to Valuation Office Agency
When a request for one or more valuations is made on a form CG20 to the Valuation Office Agency any which are required on an undivided share basis should be clearly specified together with the percentage share or shares to be valued.
Otherwise the Valuation Office Agency will value on an ‘entirety’ basis.
It is important that valuations of all interests in land held in undivided shares are considered together. As soon as you become aware that the valuation you are looking at is of an undivided share of land then appropriate action should be taken to ensure that all of the shares in that land are considered together. Any valuation request for an undivided share where more than one customer is concerned should be clearly marked and a memo attached giving relevant details of the other shares.
Separate forms CG20 in respect of the valuation of each share are required for each customer.
For land in Northern Ireland, the referral should be made to Land & Property Services Northern Ireland as per CG74000, Section 4.