CGT valuation

CGT valuation

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A company has a valuation of a property it wishes to purchase from its self administered pension fund. The valuation is 10 months old. Will the I Rev accept that or will it be necessary to obtain a current valuation. Are there set rules or is it at discretion of the Inspector reviewing?
knuckles

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By vowlesj
15th Jun 2005 18:19

How long is a piece of string?
Because the UK tax system is based around self-assessment it is up to the directors to decide if they are happy with the valuation they have got already. But a wise tax partner once said to me, always get a couple of valuations and still be prepared for the District Valuer to challenge the price.

The local inspector who looks at the case has the discretion to refer the value to the District Valuer, but if you are talking about a significant value or where a small increase in value could tip the balance into a tax liability or a sale to a connected party then it will almost always be referred.

I would have thought it would be referred as there is no independant third party to the transaction and therefore the taxman will want to satisfy themselves that you are not taking the property out on the cheap.

You will also need to be careful of the duty of care on the pension trustees - this will almost certainly mean getting more than one professional valuation - else the trustees could be sued for the loss to the pension fund. Oh and the pensions regulator would be the one suing the trustees, the accountants, the lawyers and anyone else within reach!

Jonathan

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By User deleted
17th Jun 2005 14:30

Use an adjustor clause and avoid the problem
The contract for sale should specify that if, but only if, the price paid [based on a bona fide valuation] is challenged by any Revenue authority, then the price paid will be adjusted promptly, with interest . The Revenue accept that this is an arms length arrangement-but if there have been material changes [such as vacant posession or planning consent]since the date of the valuation you may not be able to rely on this.

Have a look at SP5/92, para's 12-15 for guidance:-

12. ......Each case depends on its own facts and circumstances but, a transaction is, in general, regarded as being at arm’s length where all the facts and circumstances of the transaction are such as might have been expected if the parties to the transaction had been independent persons dealing at arm’s length i.e. dealing with each other in a normal commercial manner unaffected by any special relationship between them.
13. ...... a provision in the document governing the transaction for an appropriate adjustment to the consideration where the value agreed by the Revenue differs from the original consideration arrived at by an independent valuer and specified in the sale document is, in general, regarded as falling within the terms of the above definition of an arm’s length transaction. The arm’s length value of the transaction is to be determined in accordance with the principles set out in paragraph 12 above.....
14. It would also be necessary for the terms of the contract to provide for compensating interest at a commercial rate to be paid in either direction once the arm’s length value is determined. For this purpose, the official rate of interest for Section 160 ICTA 1988 purposes will usually be regarded as equivalent to a commercial rate of interest, although a different rate may be accepted as so equivalent if the circumstances of a particular case warrant this treatment.
15. This practice is, however, subject to the consideration passing on sale being realistically based, i.e. on a third party valuation by a qualified valuer, all the other terms of the transaction being at arm’s length and the compensating interest being timeously paid. The position in a particular case depends on all the facts and circumstances.

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