IHT compliance property valuation query

[jsm]

I have an IHT property valuation query. My late aunt left her bungalow in equal shares to my brother, my sister and I (and my sister and I are Executors). Our September 2011 probate valuation of £325,000 was based on a single valuation from a local estate agent. We agreed that we would transfer the title to our 3 names following grant of probate.

However, in August 2012 my sister agreed to sell her one third share of the bungalow to my brother and I for £118,333 - ie. based on a valuation of £355,000 (reflecting our perception of market price movement over time). The Land Registry advised that there should be a single title transfer from (the estate of) my late aunt to my brother and I to effect both the transfer at probate value to the 3 beneficiaries and the transfer of my sister's share based on our agreed (later) valuation of £355,000. The actual completion date for the Land Registry transfer was late September 2012.

Meanwhile, an IHT compliance check was instigated in early September 2012 and an IHT valuation of the bungalow was carried out as part of this. The valuer has just invited us to comment on his valuation of £400,000 as of date of death in September 2011. His valuation is based on sale prices of 3 properties that (in my view) are not comparable with our bungalow and that sold for approximately £440,000 to £460,000; these properties are from more expensive post codes and/or different size or proty type. A difficulty with valuing is that the number of bungalows in our area is very small.

We wish to minimise further IHT liability to the estate and would be grateful for advice and comments on the best way to proceed with a reponsse to the IHT valuer.

Many Thanks, jsm

[maths]

Inevitably the DV always errs on the higher side.

You need to instruct a valuer conversant in valuations for probate purposes who can provide you with some ammunition to challenge the DV.

An estate agent's valuation is often not of sufficient weight.

A £30,000 increase, prima facie, seems unreal in today's climate; something's not right.

[peter@2711.co.uk]

There are no time limits on the District Valuer, who can reject all Professional Property Valuations without giving a reason. DV can also refuse to see his own "comparables". Disputes can last 10 years or more. The Adjudicator's Office is just another unit of HMRC and no remit to consider PPV Disputes. It is almost impossible (and very expensive) to go to the Lands Tribunal for help. In additional to the extra IHT payable on a higher PPV, HMRC can impose penalties of up to 100%.

In the Tax Year 2006/7 HMRC successfuly rejected 41.7% of PPV - reduced to a low of 33.7% 2008/9 but understood to be back up to 40% 20011/2 with a further 26% additional tax of £137m. So a common problem and lots of comment on Taxationweb.

If you decide not to accept the DV's Valuation you need a lot of help and masses of detailed reasons why your Valuation is correct. Suggest you start by getting 2 more Valuers (pref FRICS) to report on what are now known as all the "Relative Properties".
HMRC have every advantage, but with accurate detailed information, you may be able to negotiate a lower figure.

Best of Luck
JazzPete

[jsm]

Thanks to maths and JazzPete for your responses. Gist of advice is to get 1 or more valuations from 'approved' (FRICS) Valuers.

However,I am wondering, does the fact that a transfer based on a valuation of £355,000 not carry any weight? I realise that this was a part sale from one beneficiary to the other two - perhaps different to selling to some other party - but nevertheless buyers and sellers had to negotiate to reach agreement on value.

[maths]

However,I am wondering, does the fact that a transfer based on a valuation of £355,000 not carry any weight?

Not really.

I suspect you will not go to court over this.

As i suggested you need some external justified valuation(s) by someone qualified in the area of valuation for probate purposes; this gives you some ammunition.

Most likely practical outcome is a value somewhere between that provided by your advisor and the DV.

[peter@2711.co.uk]

Agree with Maths - Answer is "No" .

A PPV is the "Thoretical Sale" of the Deceased's Property (with all formalities and requirements in order ) with "Completion" as at date of Death.

Arguments about a "Theoretical Sale Valuation" can continue undefinitley. HMRC have targets to increase taxes, so the normal tactic here seems to be to wait at least a year - hit the Exors with a high "frightener" and then "compromise". Remember, HMRC will not only impose additional IHT for any undervaluation you agree, they will also charge interest on this sum back to the appropriate date and have the power to impose penalties of up to 100% of the underpaid tax if they have reason that there was a deliberate undervaluation by Exors/Exors Agents.

Even if you had the property on the Open Market for Sale at £325K and exchanged contracts for Sale at £325K before inspected by DV, it is not unknown in these circumatances for the DV to Claim a correct "Theoretical Value" of £400K. The £355K argument has no benefit and confuses the dispute, so would no mention in you submissions unless you have professional valuations to support the £355K

Jazz Pete

[Ivor Goodbody]

I have a couple of new queries on this topic but did not wish to clutter the board with a new thread.

As an executor, I have been fortunate enough to sell the property in an estate for more than the professional probate valuation by a RICS- qualified surveyor. Less fortunately, it seems the District Valuer may now challenge that valuation. From what I read on the boards here, it seems even a top-drawer, by-the-Red-Book valuation may not be enough to satisfy the Revenue as to the value-at-death.

My first query is: can anyone tell me how the DV usually makes their own calculation in such cases, so that I can have some idea of what arguments to muster against any upward revision? Do they simply go on market comparables? Do they do a "drive-by", or do they actually visit the property under the new owner, interview the owner &c? I am concerned, for example, in case the new owner may already have begun extensive improvements to the property which they were mulling when I showed them round. I realise the DV is not supposed to take these into account, but I can't help thinking a better-looking house would be bound to sway the DV's judgment, even if only subconsciously!

Lastly, would my best response, in case of a challenge, be simply to point them in the direction of the surveyor we hired at such expense and ask them to clarify/negotiate with him?

TIA for all help. I have already greatly benefited from the wisdom and expertise on this board and hugely appreciate its existence.

[King_Maker]

I only obtain Valuations from valuers who are prepared to defend their opinion to the DV/HMRC.

Did you discuss this aspect with the Valuer you engaged?

[Ivor Goodbody]

I did, and he proudly claimed that, although a previous such valuation had been challenged, he had never yet had a valuation overturned.

I remember hoping at the time that his good luck - or judgment - would hold!

Do you think the best strategy might be to get him to duke it out with the DV? He did also claim he's on good personal terms with the man in question, assuming there hasn't been a new appointment this year.

[jsm]

Ivor

It was me who started this thread. I have since been in a similar situation for my late mother's etstae but this time heeded advice on this web site and paid for an FRICS valuation. The FRICS Surveyor said he would defend his valuation with HMRC if necessary. I haven't heard back from HMRC so nothing to report but I would recommend that you ask your Valuer to defend their valuation with HMRC.

Secondly, the outcome from the original scenario on this thread, for which I had only one estate agent valuation, was that I negotiated directly with the HMRC Valuer. To support my case I looked for similar properties in the same locality on RightMove and similar sites, and calculated average prices for properties sold and properties advertised (I found that the latter tended to be higher). Hard to judge how much this helped but probably made the HMRC Valuer realize he would have work in his in-tray if the negotiation persisted - he met me half way on the difference between the estate agent and HMRC valuations - I suspect the figure was arbitrary and he just wanted to close the case (as did I).

Finally, remember that if the Probate valuation is lower than the actual sale price you could be liable for capital gains tax - depending on how big the difference is, how many beneficiaries etc. Of course, this would still be lower than 40% IHT.

Good luck!

Steve