The property comprised a substantial five-bedroom detached dwelling with gardens, garage and off-road parking. Its principal appeal was its proximity to the beach and attractive sea and coastal views, placing it within one of Cornwall’s strongest second-home and prime residential markets.
The property was held between four co-owners and, following the deaths of two of the owners, valuations of their respective minority interests were required as at separate dates for Inheritance Tax purposes.
Our first consideration was to establish the Market Value of the property as a whole at each valuation date. We inspected the property and undertook detailed research into comparable transactions within the immediate coastal market.
The most persuasive evidence was the recent sale of the neighbouring property. This provided particularly strong evidence due to its almost identical location, although careful adjustments were required for differences in plot size, floor area, quality of sea views and accommodation.
We also considered other transactions within the surrounding market, including properties occupying prime frontline positions overlooking the beach. These demonstrated the substantial premiums purchasers were prepared to pay for the best views and positions and helped establish the appropriate value hierarchy within the local market.
The second and more unusual element of the instruction was establishing the value of the individual minority interests.
A percentage ownership of a property does not necessarily have a value equal to the same mathematical percentage of the value of the whole. A hypothetical purchaser of a minority interest acquires an undivided share and does not have sole control over the occupation, management, redevelopment or ultimate disposal of the property.
We therefore considered the principles applicable to the valuation of jointly owned property for taxation purposes, including relevant case law and HMRC/Valuation Office Agency guidance.
In determining the appropriate adjustment, we considered the size of the interests, the four-party ownership structure and the restricted market likely to exist for a minority share. The property’s redevelopment potential was also relevant, as realising this potential would require cooperation between the co-owners.
Conversely, the remaining co-owners represented potential special purchasers who could have an enhanced interest in acquiring an additional share.
Our report provided the executors and their professional advisers with independent RICS valuation advice addressing both the value of the property as a whole and, importantly, the Market Value of the individual minority interests for Inheritance Tax purposes.
The instruction demonstrates that valuing a part share in jointly owned property can require considerably more analysis than simply applying the relevant ownership percentage to the value of the whole. The rights attached to the interest, ownership structure, potential purchaser pool and ability to realise the underlying property value can all materially influence the appropriate valuation for taxation purposes.
