This case study is based on a real instruction. Names, addresses and identifying details have been changed, and figures rounded, to protect client confidentiality.

The instruction

A client wished to transfer a 50% share in a buy-to-let flat in south west London to her adult daughter. The flat was let, mortgage-free, and had been owned since 2009. Her solicitor asked us for a Red Book Market Valuation to support the transfer.

Her initial assumption was that the value of the transfer was simply half the value of the flat. It usually is not, and the reasons are worth understanding before any transfer is executed.

Why a valuation is needed at all when no money changes hands

Precisely because no money changes hands. A gift or undervalue transfer between connected persons is not accepted at its stated consideration for tax purposes:

• Capital gains tax. Under sections 17 and 18 of the Taxation of Chargeable Gains Act 1992, a disposal to a connected person — which includes a child under section 286 — is deemed to take place at market value regardless of what, if anything, was actually paid. The parent may therefore have a CGT liability on a transaction that produced no cash.
• Inheritance tax. The gift is likely to be a potentially exempt transfer, falling out of account if the donor survives seven years. Its value must be established at the date of the gift, and will be needed by the executors years later if it does not.
• Stamp duty land tax. SDLT is charged on chargeable consideration. A pure gift with no mortgage may carry none, but where a share of a mortgage is assumed, that assumption is consideration, and where the property is an additional dwelling the higher rates may apply.

Each of those depends on a defensible market value at a specific date. A figure arrived at informally is a liability waiting to be found.

The valuation

We valued the flat as a whole, and then addressed the share.

Why a discount, and why it is not automatic

A half share in a property is worth less than half the property, because the hypothetical purchaser of that share acquires something considerably less useful than the whole: no exclusive possession, no unilateral right to sell the property, a co-owner they did not choose, and a market for the interest that is thin to non-existent. Discounts in the region of 10% to 15% are commonly negotiated with the Valuation Office Agency for undivided shares, with the level depending on the nature of the co-ownership and whether the other co-owner is in occupation.

But the discount is not a given, and two qualifications must be stated plainly:

• Related property rules. For inheritance tax, section 161 of IHTA 1984 requires property to be valued together with related property in certain circumstances — most importantly where the other share is held by the transferor’s spouse or civil partner. Where those rules bite, the discount can be lost entirely.
• It is negotiated, not conferred. The VOA scrutinises share discounts. The level must be justified on the facts of the particular co-ownership, not applied as a rule of thumb, and a report that simply asserts “15%” without reasoning will not survive scrutiny.

Here, the transfer was parent to child, the parent retained the other half, both would be co-owners with the property let to a third party, and neither would be in occupation. We assessed 10% as appropriate and set out the reasoning in full.

What the report contained

• the basis of value and the effective date, stated explicitly;
• the comparable evidence for the whole, analysed and adjusted;
• the tenancy details and their effect on value;
• the reasoning for the share discount, with reference to the specific circumstances of the co-ownership;
• assumptions, special assumptions and any limitations on inspection;
• confirmation of Red Book compliance and the valuer’s RICS Registered Valuer status.

That report went to the client’s accountant for the CGT computation, to the solicitor for the transfer deed and SDLT position, and into the family’s records against the possibility of an IHT enquiry seven years later.

A word on what we do not do

We are chartered surveyors and RICS Registered Valuers. We provide the market value; we do not advise on whether a transfer is a good idea, and we are not tax advisers. Gifting property has consequences that reach well beyond valuation — reservation of benefit, the donor’s own security, the recipient’s own tax position, exposure on a relationship breakdown, and the loss of the capital gains tax uplift that would apply on death. Those are questions for a solicitor and a tax adviser, and we would always want a client to have taken that advice before instructing us.

Frequently asked questions

Do I need a valuation to transfer property to a family member?

In almost all cases, yes. Transfers between connected persons are treated for tax purposes as taking place at market value regardless of what is actually paid, so a defensible market value at the date of transfer is needed for capital gains tax, inheritance tax and, where a mortgage is assumed, stamp duty land tax.

Is a half share worth half the property?

Usually not. An undivided share carries no exclusive possession, no unilateral right of sale and a very limited market, so a discount is generally appropriate — commonly in the 10% to 15% range. The discount must be justified on the facts, and inheritance tax related property rules can remove it where the other share is held by a spouse or civil partner.

Can I just use the Land Registry sold price of a similar flat?

A single sold price is a data point, not a valuation. It says nothing about condition, floor area, floor level, lease terms, tenancy, or the adjustments required to make it comparable. Where a figure will be relied on for tax purposes, it needs to be a valuation you can stand behind if HMRC asks.

Does the tenant affect the value?

Yes. A property let on an assured shorthold tenancy will generally be worth less than the same property with vacant possession, and the difference can be significant where the local market is owner-occupier driven. The valuation must state clearly whether it is on a vacant possession or tenanted basis.

Planning a transfer?

Blakes Chartered Surveyors prepare Red Book Market Valuations for transfers of equity, connected party transactions, matrimonial matters and share valuations, working alongside solicitors and accountants across London and the South East. Fixed fee agreed before instruction; most reports delivered within 5–10 days of inspection.

Call 020 7373 7373 or email info@blakessurveyors.com.