An inheritance tax valuation is a valuation undertaken by an RICS-qualified chartered surveyor. It is used to determine the tax that must be paid on an estate before it passes on to the beneficiaries.
Valuing a Property for Inheritance Tax
The general rule for inheritance tax purposes is that the value of any property is the price it might reasonably be expected to fetch if sold in the open market at that particular time. This is known as the “market value”.
The Inheritance Tax Act 1984 sec.160 definition of market value is:
‘Except as otherwise provided by this Act, the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time’
In arriving at market value, the following assumptions must be made:
- The sale is a hypothetical sale
- The vendor is a hypothetical, prudent and willing party to the transaction
- The purchaser is a hypothetical, prudent and willing party to the transaction (unless considered a special purchaser)
- For the purposes of the hypothetical sale, the vendor would divide the property, i.e. asset to be valued into whatever natural lots would achieve the best overall price
- All preliminary arrangements necessary for the sale to take place have been carried out prior to the valuation date
- The property is offered for sale on the open market by whichever method of sale will achieve the best price
- There is adequate publicity or advertisement before the sale takes place so that it is brought to the attention of all likely purchasers and
- The valuation should reflect the bid of any special purchaser in the market (provided that purchaser is willing and able to purchase).
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