Tag Archive: tax
We sat down with Andrew Entwistle, partner at George F. White, to discuss the importance of getting a correct valuation on an asset.
I am firm believer that any business or individual cannot make a rational or informed decision without knowing the value of an asset, or the cost consequences of a particular action. In fact, understanding value is the under pinning basis on which professionals advise their clients on a particular course of action.
We have seen, over the last six years, the introduction of Automated Valuation Models (AVMs), particularly into the residential sector. Will we ever see AVM’s being used to value agricultural assets and farmland? I doubt such models could ever achieve even a modest degree of accuracy for farmland. Simply put, rural assets are too diverse for a computer to handle, particularly in the market that we are in. With low supply, demand can be high yet market conditions are showing a distinct patchiness with hot spots where land prices greatly exceed expectations, contrasting with similar quality land in low demand areas struggling to sell at below average guide prices.
I have the perception that most people consider valuations are only needed for either selling or when a bank wishes to take some security for a mortgage. There are many other good reasons to get a written valuation which are often overlooked, or simply guessed at.
The frequent scenario I come across is the case when a farmer dies. In the course of obtaining probate estimates of value are submitted, particularly in the case when Agricultural Property Relief or Business Property Relief applies and there is no inheritance tax to pay. A death forms an important tax point on the value of a farm and subsequently used as a base for future events such as calculating capital gains tax. More often than not, agricultural value is underestimated or simply not recorded.
Dealing with capital gains tax cases, another important relief that is often overlooked in Principle Private Residence Relief, where a main dwelling house can be free of Capital Gains Tax including up to 0.5 Ha of gardens, grounds, and outbuildings. A formal valuation at this point should have some analysis which attaches value to the garden and grounds from the rest of the farm that can minimise a Capital Gains Tax bill.
Another misunderstood concept I come across is Hope Value, where clients attach large values to land on the basis it will developed in the future. Market Value is the standard definition that is used for bank security purposes and reflects the price that the market will pay for an asset at a specific point in time. Research carried out by George F. White shows that developers are unlikely to pay significant sums over existing use value if the land has not got planning consent. A client will view the value of their land with Hope Value differently, taking into the “worth” of the development opportunity in the future them. The “worth” and “Market Value” of land is often significantly different.
Different valuation purposes often have different bases of value, for example tax valuations are have subtlety different valuation base to security valuations that in certain circumstances can give rise to very different values. In the case of matrimonial valuations Market value may not be an appropriate as it would not reflect the existence of a special purchaser.
So will a professional Valuer ever be replaced by an Automated Valuation Model? Only if an AVM can talk to clients and understand their objectives, decide the correct valuation base to use, and work as a team with an accountant and solicitor. I can’t see that happening in my lifetime.
Selling your farm can be a daunting and complex experience, requiring a lot of patience, details and documentation. It is nothing like selling a house as you’re selling a business and a home which means many considerations and processes need to be put in place. However, if you approach it in the right way, with enough planning and organisation, the experience can be a lot calmer and, importantly, more profitable.
Plan in advance
Many farmers, including clients we’ve worked with, have greatly underestimated just how long it takes to effectively sell your farm, from beginning to end, which has created a more complicated and less fruitful selling experience.
To reach its true selling value potential, you need to get things moving well in advance of the time you’d like to sell your farm and land. There is a huge amount of legal information, paperwork and documents that need to be prepared and approved such as division of proceeds between owners, partnership issues, outstanding Basic Payment Scheme (BPS) matters, historic planning permissions investigations, confirming accesses and unwritten tenancies which each need addressed properly so that the sale can be completed.
There is also numerous tax implications involved when it comes to selling your farm so it’s important you keep this at the forefront when planning your sale. It’s vital you understand the tax issues and ensure you’ve addressed them properly at the start of the sale process. Last minute realisations of tax liabilities will not only slow down the sale, it might potentially put the entire sale at risk.
Get the right advice
Once you have made the decision to sell, it’s important that you seek advice on how to sell your farm effectively, to secure the best value. The right advisor will sit down with you at the very beginning and outline everything you need to do, that they can do on your behalf, and explain the entire process and what the sale of your specific farm will entail. We have worked with a wide range of farmers across the region to help sell their farms – whether that’s an arable, stock, equipped farm or bare land with development potential – and our team have the experience and skill set to ensure you sell successfully.
George F. White is currently preparing a number of farms for the market in 2018 and 2019, following a busy 2017 in farm and land sales across the North. If you are considering selling next Spring, now is the time to get in touch with a professional, trusted advisor before the Christmas period where most professional offices are closed.
To discuss the sale of your farm, or if you have any questions, please contact your local Rural Practice Surveyor:
Northumberland and Borders: Tim Michie firstname.lastname@example.org
Durham and Yorkshire: Matthew Brown email@example.com
Is now a good time to sell my property?
Many vendors are driven by external factors when selling their property, such as the requirement for a larger dwelling or the need to relocate for work purposes. Therefore the timing of a sale is not always something they are able to dictate. We find that correctly priced property will sell at any time of the year providing it is well presented by the agent and advertised appropriately by a proactive team who are familiar with the property and the local market. Undoubtedly, properties are often more photogenic during the spring and summer months but clever photography can show any property in its best light at any time of year.
Should I redecorate?
This is a question we are often asked and the answer very much depends on the property’s current condition. If your property is habitable and relatively neutral, our advice is often to leave the walls and flooring for the new purchaser to put their own ‘stamp’ on. If the decor style is particularly ‘wacky’ or dark then it may be beneficial to neutralise the colour scheme. We provide tailored advice to our clients during our initial property appraisal to offer our experienced opinion on the best way forward.
How long will it take to sell my property?
How long is a piece of string? Be aware of agents who will promise to find you a buyer in a given period of time. Buyer activity peaks and troughs throughout the year, often without a tangible reason. A reaction from the market cannot be guaranteed until the market has been tested and will vary property to property. However, as a generalisation, some form of market response should be seen within 3 months of launch, whether that be in the way of viewings, telephone enquiries or, in the best case scenario, an offer. From this initial market response we are able to review the marketing strategy and either adjust it or agree a sale.
Should I sell off part of my property, such as a garage, separately?
This largely depends on the size of your property, in the case of a garage/storage building its proximity to the house and the availability of alternative parking/the storage capacity of your home. Another big question to ask yourself is how much value the garage would add to the buyer’s property should you, for example, be considering selling to a neighbour. Individual advice should always be sought as while a separate deal may seem like an attractive proposition it could compromise the sale-ability of your property. At free market appraisal stage, our valuers will always consider your options to maximise the property value.
Do I need to consider my tax position?
If you have lived in your property for at least the last 2 years prior to sale then you should benefit from Principle Private Residence relief and therefore should not pay any Capital Gains Tax. If you are selling an investment property/rental property then we recommend that you consult your accountant/financial advisor prior to selling. If you are selling a property that you have inherited your solicitor will advise on what professional valuations are required and subject to the size of the overall ‘estate’ there may or may not be Inheritance Tax to pay.
If you are thinking of selling or letting your property and would like further information on anything touched on above, or have another query, please contact your friendly and professional local team:
Alnwick, Northumberland –01666 603581
Wolsingham, County Durham – 01388 529579
Barnard Castle, County Durham – 01833 690390
Bedale, North Yorkshire – 01677 425301