How to maximise the future value of your rural assets with our valuation services
Tue 26 Sep 2023
When working with farming businesses at a point of change or re-assessment, careful consideration of the value and taxation reliefs relating to property will help ensure clarity about proposed strategic business decisions.
Valuations are required for Inheritance Tax purposes following the death of an owner or for secured lending purposes to secure funding for a property or venture. However, there are various other situations when a valuation can support decisions.
Inheritance Tax Planning
We encourage proactive clients to consider possible changes in ownership of property to enable a discussion about what reliefs might be available and any potential changes that might help mitigate tax before a chargeable event occurs. With the additional information, your advising team can help you make informed decisions when considering Wills and succession to prevent later regrets.
Agricultural Property Relief (APR) is the relief against Inheritance Tax available on the agricultural value of agricultural assets used for agriculture. There are different rates, so it is important to understand any limitations.
While APR is vital in supporting the transfer of assets from one generation to the next. It is important to recognise that development land and any non-agricultural value embedded in assets will still be outside the scope of the relief. To enable the transfer of assets used in a businesses however, Business Property Relief (BPR) can include any of the non APR portion of value to limit tax on the transfer of these assets.
Eligibility for APR is relatively straightforward whereas BPR is more involved. The asset must be used in the business of the taxpayer, but how the assets are held is vital to any available relief. This is a particular issue in the case of partnerships and where there may be a family tenancy, so early advice is strongly recommended.
As advisers, we want to ensure that your assets can be passed on in accordance with your wishes while keeping tax liabilities to a reasonable minimum. We appreciate that gifting property in your lifetime can be difficult for many reasons, but a valuation with additional consideration about possible reliefs can help identify assets that could exacerbate tax, allowing us to deal with them in a way that you can control. If well planned, this can reduce disagreements within the family and reduce the risk of unexpected surprises.
Inheritance Tax Valuation
We are well aware that informal valuations are eligible for probate purposes. However, generally with complex property, where reliefs are involved, and where we advise, we promote a formal Red Book valuation to ensure thorough advice.
As RICS registered valuers, we have to comply with the RICS Red Book, a set of professional standards requiring fully justified and evidenced values which makes this type of valuation more robust for discussions with HMRC or of course if you are involved in a disagreement.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax on any gain in value since purchase, or 1982 if earlier when you dispose of an asset. If assets are gifted or sold to related parties, HMRC requires a market value for the transaction.
The principal reliefs which apply to CGT are Rollover Relief and Principal Private Residence Relief (PPR).
Rollover Relief is particularly useful where significant gains arise, such as with the sale of development land. The relief allows tax to be deferred by reinvesting the gain in a new business asset. The new asset is then recorded as having a lower base value for CGT purposes than the actual purchase price. This has no immediate negative consequences other than to defer the tax that would have been due until a future point of sale.
Principal Private Residence Relief applies where the dwelling house has been your only or main residence during your period of ownership. The calculation is adjusted for periods of non-residence although transitional arrangements exist for some periods of non-residence, and periods of absence to work abroad full-time or if an owner had to live in work-related accommodation can be ignored.
There is a rather arbitrary limit of half a hectare of garden and grounds permitted automatically. This is described by HMRC as ‘the area required for the reasonable enjoyment of the dwelling house as a home’. However with a larger property or where there is significant ancillary property like a lodge cottage, extensive driveways, garaging, stabling and wider grounds, the issue becomes something to negotiate carefully with HMRC. This is not necessarily straightforward as their valuers tend to want to follow the standard area restriction which will be unreasonably restrictive in many cases.
An experienced valuer may be able to justify a larger permitted area thereby reducing exposure to tax. The valuer will also be able to determine the value of any area that exceeds the tax-exempt area and calculate the potential capital gain arising from the disposal of the taxable proportion of the property.
If you are disposing of your property and the grounds exceed 0.5 hectares, it is prudent to instruct an experienced valuer at the beginning of the sale process to help you to mitigate tax if possible. Advising early can help establish the greatest chance of success.
When considering the impact of planning permission on property, valuations can be provided based on special assumptions. These valuations make an assumption which is different from the actual situation at the valuation date. For instance, an owner might want to know what a site would be worth with an assumption that a specific planning permission has been obtained or that a proposed building is already built.
These are not unusual although with buildings, it is important to recognise that ‘cost does not necessarily equal value.’ As an example, if an owner spends, say £300,000 erecting a building, it does not automatically mean that the land and building are worth £300,000 more. It could be worth more, and in some cases, it could be worth less and over time it may well be.
Valuations subject to special assumptions are likely to help Inheritance Tax planning, as mentioned above. This leads back to discussions about business structure and ownership, and whether it may be sensible to move the property on a generation or to consider use of ownership within a corporate structure or a trust before seeking planning permission. In this way a successful planning permission may not necessarily cause a longer term tax problem.
There are multiple reasons why property owners and managers require regular valuations of their assets, including annual or capital taxation, charity legislation, secured lending and for strategic internal planning purposes.
Brown&Co’s RICS Registered Valuers have extensive experience in working with clients’ wider professional team in providing regular (and in many cases, annual) valuations for reporting purposes. Our understanding of how our valuation fits into the bigger picture enables us to work collaboratively with the accountant, auditor, lawyer or banker to provide timely valuation advice to enable the wider team to target their advice.
Common to all of our valuations are robust processes and up to date recording of transactions from around our regions which allows us to provide accurate advice based on our knowledge of the sectors we work in and the market participation at any given time.
At the time of writing, there are currently just 18 valuers across the UK who have been designated Recognised European Valuers (REV) by The European Group of Valuers (TEGoVA). Until a recent retirement, over 15% of the REVs in the UK worked at Brown&Co.
Valuer members of Brown&Co’s International division, incorporating offices in Poland, Romania and the Caribbean, undertake valuation instructions of predominantly agricultural property (freehold and leasehold farmland), grain (flat stores and vertical elevators) and root (ambient/bulk/refrigerated/box) storage facilities, offices and associated infrastructure, across central eastern Europe as well as further afield globally.
An important attribute of many Brown&Co international valuations is the interplay and cooperation with our International Agri-Business team. This enables us to produce a combined report to cover property-based matters and an in-depth analysis of production economics, which a ‘normal’ report wouldn’t necessarily cover.
The reports produced on this basis are often for valuations undertaken as part of a wider Due Diligence process, usually in connection with a prospective investment into an agricultural property and/or business where Brown&Co is instructed to assist with an extended piece of work.
Undertaking property inspections of acquisition targets, along with our combined team of experienced Agri-Business Consultants and RICS qualified valuers, offers industry leading insights, practical guidance and expert advice for your next international property valuation or investment opportunity.
There are many instances where valuations are essential. At Brown&Co, we have a team of qualified valuers who will willingly provide professional valuation advice for a wide range of purposes and asset types. We will provide the valuation you need as swiftly and efficiently as possible, whilst looking for other factors where value might be added by suggesting opportunities to maximise the benefit to your business.
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