What Is Property Valuation For Capital Gains Tax Purposes?

A capital gain is defined as the profit or financial gain made on an asset that has been sold or disposed of. It is calculated by determining the difference between what you pay for a property and what you get for it when you dispose of the property. Normally, you will be mandated to pay a capital gains tax on capital gains made on a property you make a profit from when you sell or dispose of it. Both individuals and entities are liable to pay a capital gains tax.

Why is property valuation necessary for capital gains purposes?

The market value of the property is a crucial component when calculating the capital gains tax on a property. A property valuation is needed to provide reliable information on the worth of the property and is especially useful to avoid situations where an individual or entity is charged much higher or lower taxes than they should be liable for.

When would I need a valuation for capital gains tax purposes?

Ordinarily, it’s the price at which you sell the property that will be used to calculate capital gain and in turn, capital gains tax. However, in some situations, you will need to use the market value of the property instead, hence the need for a property valuation. Such situations include:

  • If you give the property away.
  • If you sell the property at a reduced price.
  • If you pass the property on to a family member.
  • When you need to calculate the original cost of the property if it was inherited or you’ve owned it before 31st March, 1982.
  • When you need to deduct the costs of any enhancements you made to the property while you owned it.

Will I be required to provide the property valuation myself?

Yes, you are responsible for providing an accurate valuation report for your property. The HM Revenue and Customs (HMRC) will not perform valuations for you but can check your valuation. You will have to report the disposal and tax due no later than 30 days after the property has been conveyed. Note that the process of checking your valuation takes no less than 2 months and can be done only after the property has been disposed of.

How many property valuations will I need to get for capital gains tax purposes?

The number of valuations you will perform is entirely up to you and is inconsequential to your capital gains tax. You may want to have more than one valuation done if you don’t trust the first one for any reason. It is essential to use a professional property appraiser with a good track record to eliminate doubt.

I have already sold the property. Can a valuation still be performed?

Yes. It is possible to perform a valuation after the property has been sold or the appraiser cannot gain full access to the property. The retrospective valuation will involve an external inspection that will be acceptable for use in determining your capital gains tax.

How long will I have to wait before I get the report of the valuation?

Once an inspection has been carried out, you’ll have to wait only a few days to get your report. Depending on the company you use, you may have to wait for 2 to 3 business days from the day of inspection.

Do I need to report a disposal even if I’ve calculated I have no capital gains tax to pay?

Whether or not you are liable to pay capital gains tax on a property you have disposed of, you are required to report the disposal to HMRC. The same applies whether there is a chargeable gain, a gain covered by relief, or a gain covered by the annual exempt amount. Where there are multiple disposals, each must be reported no later than 30 days upon conveyance of the property.

How do I submit my property valuation to HMRC?

Following disposal of your property, you must complete the post-transaction valuation check form provided by the HMRC. Both individuals working out their capital gains tax liability and companies working out their Corporation Tax liability on chargeable gains can use the form CG34 to ask the HMRC to check their valuation. The form CG34 is downloadable from their website and must be returned to the address specified on the form. If the HMRC finds your valuation agreeable, it will not be disputed and you’ll be permitted to use it in your return. You will have to wait at least 2 months before receiving a response from HMRC.

Who is eligible to pay capital gains tax?

Generally, you will not be required to pay capital gains tax on whatever profit you make when you sell your main or sole home. If, however, you own more than one home, you may be eligible to pay a capital gains tax. You might be billed this tax if:

  • You have made capital enhancements to your house with the aim of making profit.
  • You bought the house for the sole aim of making profit.
  • You develop or repurpose your house, for instance, by turning part of it into flats.
  • You let out the entire house or a part of it.
  • You designate a part of your house to be exclusive for business purposes.
  • You are a beneficiary of a deceased’s estate or a superannuation fund.
  • The size of your entire plot is more than half a hectare and you sell part of your garden.

You don’t live in the house. (Depending on the nature of the absence, your gains may be tax-free.)

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Published on 1st June 2017

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