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Where Taxpayers and Advisers Meet

Value of leases for IHRT

DWJ
Posts:2
Joined:Wed Jun 21, 2017 12:33 pm
Value of leases for IHRT

Postby DWJ » Wed Jun 21, 2017 12:50 pm

My Grandparents held 99 year leases on four modest flats that they built in North London. These have each generated £10 pa in ground rent ever since! When they passed to my parents, probate valued them at 10 times the annual ground rent making each worth £100. This was accepted back in 1999. Any subsequent extension renegotiations that have taken place were declared for tax purposes.

These leases have now passed to me and were again valued on ground rent for probate purposes recognising the potential for Income or CG Tax in the future if a homeowner sought an extension. However, HMRC have valued the leases (ranging from 75 to 88 years term outstanding) at £85,000 combined giving an additional IHRT liability of over £34,000! What is the precedent here?

Fundamentally I have problem with valuing leaseholds like this. Most assets like property or shares can be disposed of under market conditions and at a time that suits the seller. Neither factor applies here. We cannot sell to pay the bill. The only sensible purchaser is the householder and they are under no obligation to buy at any time during term. If they do, I will pay the tax on the actual sum realised. If they don't the property reverts to us (though this is unlikely to be the legal position at this point of time) but this is something that maybe my Grandson has to concern himself about. In the meantime, new grandparents have to pick up a tax bill on an unrealisable asset.

Advice please.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Value of leases for IHRT

Postby pawncob » Wed Jun 21, 2017 3:42 pm

many books have been written..................

Here are some worked examples
http://www.peterbarry.co.uk/blog/leaseh ... -examples/

This isn't very helpful, because it's been redacted.
https://www.gov.uk/hmrc-internal-manual ... /ihtm04281
With a pinch of salt take what I say, but don't exceed your RDA

DWJ
Posts:2
Joined:Wed Jun 21, 2017 12:33 pm

Re: Value of leases for IHRT

Postby DWJ » Mon Jun 26, 2017 11:55 am

Thanks for the information regards valuations but the key point is, should an asset be valued on potential income when there is no ability to realise it or on the guaranteed peppercorn income with CGT or Income Tax taking care of any income that might arrive in the future?

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Value of leases for IHRT

Postby pawncob » Mon Jun 26, 2017 12:14 pm

Challenge HMRC's valuation then.
Frequently they fly a kite in the hope that the taxpayer willaccept the value given.
With a pinch of salt take what I say, but don't exceed your RDA


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