Independent valuation challenged by HMRC
A recent Tribunal case contains a salutary lesson that HMRC are not bound to accept independent valuations. In this case an additional liability to CGT arose by reference to the final negotiated deemed cost of a property. This was lower than the independent valuation which meant that the gain arising on the ultimate disposal was higher than was shown on the taxpayer’s self assessment tax return.
The taxpayer, with his brother and his sister, owned a maisonette in which their mother lived. She had gifted it to them in 1998. In 2001 the taxpayer obtained a valuation of the maisonette of £150,000 as at the date on which they acquired it. They sold the maisonette in 2005 for £249,000. The taxpayer reported his share of the capital gain on his 2005/06 return, computing it by reference to an acquisition value of £50,000 (one third of £150,000).
HMRC took the view that the value of the maisonette on acquisition was less than £150,000. The parties later agreed that the correct deemed acquisition value of the maisonette was £123,750. The taxpayer was thus liable for tax on a higher capital gain than that which he had reported. In order to mitigate the additional liability he planned to dispose of shares that were standing at a loss. He wanted HMRC to allow him to offset that loss against the earlier gain. The Tribunal agreed with HMRC that this was not possible.