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Valuation of Assets for Inheritance Tax
VALUATION OF ASSETS FOR INHERITANCE TAX
Valuation of assets accounts for a large part of the compliance checks by the Inland Revenue and therefore it is essential that the assistance of qualified, independent valuers for most of the assets in an Estate are obtained and we must ensure that valuers are given appropriate information and instructions when being asked to provide a valuation.
The general rule is that the value of any asset is its open-market value, although there may be some special rules relating to certain assets, such as listed shares, or if assets must be valued together, for example where the value of a group of assets has a greater value than the single item.
The open-market value of an asset is the price it might reasonably be expected to fetch if sold on the open market at any time (Section 160 Inheritance Tax 1984), which is the realistic selling price of the asset.
HMRC strongly advises that a qualified, independent valuer is instructed to undertake necessary valuations and also requires taxpayers to be proactive in questioning valuations if they seem to be too low or have not taken relevant points into account, such as Hope value.
It can in some circumstances be prudent to obtain more than one valuation and agree an average value, as it is unlikely that a reduced Probate valuation would be agreed in certain circumstances.
When valuing a business, a professional valuation should be obtained, the value of business assets are to be included, and this may not be the figures in the accounts, particularly if, for example, values of assets such as land have not been updated year to year. Business Property Relief should be considered but all relevant enquiries must be made to be satisfied that the business is a qualifying business so that only correct claims are submitted. The Inheritance Tax Act 1984, Section 103(3), states that “business includes a business carried on in the exercise of a profession or vocation but does not include a business carried on otherwise than for gain”. A hobby business would not qualify for Business Property Relief. There are various types of relevant business property attracting relief, including a business or an interest in a business which attracts 100% relief; a controlling shareholding in an unquoted company, again attracting 100% relief; a substantial or other shareholding in an unquoted company, again attracting 100% relief; a controlling shareholding in a quoted company which attracts 50% relief; land, buildings, machinery or plant used wholly or mainly in a business carried on by a company controlled by the Transferor or by a partnership of which he or she is a partner, which attracts 50% relief; land and buildings in which the Transferor has an interest in possession and which is used in his business, if transferred with the business attracts 100% relief and if not transferred with the business only attracts 50% relief.
The Transferor must have owned the property for at least 2 years before the transfer.
Getting the valuation wrong or failing to disclose information to the Revenue can result in hefty penalties.
Please contact our specialist team of lawyers if you would like assistance with any aspect of probate or inheritance tax.