Best for revaluation – vacant possession or sitting tenant?

Best for revaluation – vacant possession or sitting tenant?

15:22 PM, 29th March 2021, About 4 months ago 8

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We need to revalue our properties as we are planning to change our business structure. So we are trying to plan ahead before a final decision is made on what to do next.

Should the properties be valued as vacant possession, or should they be valued with sitting tenants?

Which is the most cost-efficient way for capital gains tax purposes and the general value of our portfolio?

Obviously, we would prefer a lower valuation to reduce the capital gain tax liability for the future.

Many Thanks



Comments

by JB

10:50 AM, 30th March 2021, About 4 months ago

If you are incorporating I would have thought you'd want a high valuation as the value of the property is rebased at that amount. Are you planning on incorporating?

by Graham Bowcock

16:58 PM, 30th March 2021, About 4 months ago

It depends on the type of property really. I transferred some houses from partnership to limited company in December and the lender had them valued. It wasn't clear that the valuer chipped the values due to the tenancies, so in essence not really any difference.

As a valuer myself, what leads to values being reduced significantly is where lettings are not compliant. Just completed one this afternoon - no documentation, no electric check (and wired fuses), no smoke alarms. Value is definitely impacted.

If the property is actually let then that is a matter of fact and the valuation should be on that basis. If the VP price still gives a reasonable return, then shouldn't be a problem either way.

Your best bet is to speak to a local valuer and find out what would suit you best from them.

by Roberts Rentals

10:12 AM, 31st March 2021, About 4 months ago

Reply to the comment left by JB at 30/03/2021 - 10:50
Thanks for your comment, potentially yes we are considering incorporating. We are in the process of ensuring that each property has a capital gain statement that is up to date.

by Roberts Rentals

10:19 AM, 31st March 2021, About 4 months ago

Reply to the comment left by Graham Bowcock at 30/03/2021 - 16:58
Thanks for you reply. All our properties have up to date tenancies and are compliant , other than the last couple having their EICR completed. I will contact our local valuer and speak to them about their revalue process and costs. Thanks for the advice

by Graham Bowcock

14:43 PM, 31st March 2021, About 4 months ago

Reply to the comment left by Roberts Rentals at 31/03/2021 - 10:19
One further point - when we incoporated our partnershio properties last year, the lender (Paragon) insisted that we use their valuations. These were a tad lower than we would have liked, but not disatrous. The advantage of a higher value is a larger directors' loan which is drawn down tax free.

by Nick Pope

7:40 AM, 3rd April 2021, About 4 months ago

Firstly I assume that these are existing tenants on AST'a and not sitting tenants with security of tenure which would have a significant (25% - 50%) effect on value.
From the valuation point of view, lenders require a valuation at market value with the assumption that there is vacant possession. It is then their responsibility to approach the perceived levels of risk during the undewriting process to reflect their own business model.
On the subject of CGT I am unable to comment professionally but would say that I strongly believe there will be tax rises as the covid threat recedes and that CGT is an easy tax to tweak upwards, perhaps by increasing the tax by an additional, say, 5% if your marginal income rate is 40% or 45%.

by Navro18@gmail.Com

12:26 PM, 7th April 2021, About 4 months ago

Reply to the comment left by Graham Bowcock at 31/03/2021 - 14:43
Hi Graham, we are looking to incorporate this year but I've been advised that any equity transferred at incorporation cannot be treated as directors loan, it becomes company money; in effect it increases the value of the shares. If that is the case, how is it working in your scenario as DL please?

by Graham Bowcock

13:02 PM, 7th April 2021, About 4 months ago

Reply to the comment left by at 07/04/2021 - 12:26
All I can say is that we have sound (long standing) accountancy and legal advice so I am confident about what we have done. I do know that there are some transfers where the equity doesn't become a DL - I think this is where there is no new finance, but not entirely sure as that doesn't affect us.


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