I’m acting in the estate of a client who died on the 28th March 2020 owning a property which has, today, been valued at £295,000 and in normal circumstances would have been given that value as at 28/3/20. Given that HMRC expect the date of death value of a property to be returned, but due to the exceptional circumstances the value of the property could not be said to be what it is today, what line are practitioners planning to take with regard to the value of properties? Any comments would be welcome. Thanks.
Valuers should be instructed to produce an “open market” valuation for inheritance tax purposes as at the date of death (preferably also citing s.160 IHTA 1984). To do otherwise may give HMRC scope to challenge the valuation.
If the valuer has provided a current valuation, their reason for this should be challenged if they have been correctly instructed and an appropriate valuation provided. The exceptional circumstances in which we currently exist do not mean that they can ignore the underlying purpose for which they are instructed.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
The problem with producing a March 2020 open market valuation is that there was no market in March 2020.
An open market requires willing buyers and willing sellers. In March 2020, the lockdown prevented buyers from viewing properties. It may have been unlawful to go property shopping. Even if it were lawful, sellers did not want potentially infected outsiders visiting them, and no sensible buyer would go out to inspect even an empty property with an estate agent.
By way of example, I receive a monthly email reporting on registrations of residential completions within 500 m of my office, and my home. There were 15 completions registered in January. There were 12 completions in February, eight in April and none in May.
The figures are worse than appears at first sight as for example the April registrations were of completions took place in February and March.
As it takes eight weeks at best from agreement subject to contract to completion, this confirms there was no market activity from the beginning of lockdown.
if there is no market, there is no market value.
It is possible that there were people who saw the lockdown as an opportunity to buy homes as a distressed sale, sight unseen, at a substantial discount, and did not need a lender’s valuation. If that happened, it would be documented. It might show values well below January 2020 prices.
An interesting question, and another example of the unique times that in which we are practicing. I’m going to make an assumption (dangerous, I know) that the value of the property may have an impact on IHT and / or CGT burden. If that is the case, it may well be worth considering commissioning a RICS valuation for the property including recommendations for disposition.
In short - my view mirrors that of Mr Saunders above.
That’s certainly the position that I’m taking in similar circumstances.
The open market requires hypothetical willing buyer and seller. According to Hoffman LJ (as he then was) in IRC v Gray (quoted, accurately, at SVM113020) the hypothetical seller is anonymous but reasonable and the hypothetical reasonable buyer slightly less anonymous. No doubt they can both be self-isolating. He goes on to say that although the sale is hypothetical there is “nothing hypothetical about the open market in which it is supposed to have taken place”, which he goes on to explain.
Part of the lawyer’s advisory skill is predicting what judges will decide. My bet is that a judge will decide that there was in existence a non-hypothetical market peopled by these spectral beings that was “open”, even though any contract (not unlawful intrinsically or as being against public policy, despite being inhibited in its usual manner of formation by lockdown restrictions) made by them might not be capable of normal completion for some time.Very possibly that factor might affect the price, perhaps significantly.
Furthermore while judicial hindsight is entirely inappropriate it is invariably exercised.
Even property which is inherently unassignable “must be assumed to have been capable of sale in the open market” but presumably not if its sale is prohibited by law (and perhaps just by public policy).
The non-existence of the normal market is adverted to in law for listed securities: where the Stock Exchange is closed on valuation day (SI 2015/616) the value on the latest previous day is taken.
Valuers also earn a living by predicting what price official valuers will settle for and the Valuation Office Agency is exclusively able to value land at its absolute value, plus or minus 0.01%, at least in its own estimation.
Could the valuation be arrived at in a similar way to that which applies to the valuation of quoted securities, where a death occurs on the non-market day but in this instance using a value midway (or 1/4 up) between the value at the start of lockdown and the value when the property market reopened?
Thank you for your responses. I did commission a RICS valuation and the valuer consulted with some of his other associates and the general consensus was that the value applied was the one attributable to it before lockdown and the report should contain a “disclaimer” that due to the unusual conditions that we were in at the time of death, the value could be higher or lower.
The estate is going to be subject to IHT so the value will be submitted to HMRC. It will be interesting to see how this goes.
All assets are meant to be valued as if they had been sold on the day after death. I think that’s the correct date for valuation as you cant say what time on the day necessarily a person dies. Many of us take the date of death I know but technically I think that’s incorrect.
However addressing the main point I don’t think we can ignore the lack of market. No one would ignore a heavy stock market fall which occurred on the day of death so why ignore a collapse of the property market. Im seeing probate valuations based on pre Covid 19 comparables. I can understand that as there are no current comparables however it doesn’'t reflect the current situation. To take my previous analogy we dont value shares on last weeks prices.
Similarly we have seen property prices rise and fall over the years. This may be a sudden sharp shock but what is the logic of ignoring it. Either you take the date of death value or you dont.
At one end you could argue the property has no value as no one will buy it. That’s probably a bit too extreme. However I had a probate sale fall through because we wouldn’t agree to drop the price by 20%.
I havent seen any guidance on this. You can understand why HMRC are wanting to lay low but this uncertainty isnt really in anyone’s interest.
We need STEP and RICS to agree something with HMRC