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Practice Note 3: England Only: Valuation Factors and Material and Effective dates

1. Basic principles

When carrying out a valuation for the purposes of an alteration to a valuation list, the basis of valuation to be adopted is contained in Reg 6 and 7 of The Council Tax (Situation and Valuation of Dwellings) (Amendment) Regulations 1994.

The basis of valuation states that the value of any dwelling shall be taken to be the amount which, subject to certain assumptions, it might reasonably have been expected to realise if it had been sold by a willing vendor on 1 April 1991.

However, although the dwelling must be valued at the fixed date of 1 April 1991, its size, layout, character and physical state of the locality are required to be considered as they existed at 1 April 1993 or a later date, depending on why the list is being altered.

In essence the question when valuing is always, "Given the size, layout, character of the dwelling and the physical state of its locality at a given date on or after 1 April 1993, how much would it have sold for on 1 April 1991?"

It is the purpose of this Practice Note to explain the date at which each of those variable factors requires to be considered.

2. When a valuation is required

A valuation is required where:

1. A dwelling was omitted in error from the compiled list or its initial entry in the compiled list is thought to be incorrect.

2. A new (post 1 April 1993) dwelling requires to be inserted.

3. There has been a "material increase" in the value of a dwelling and a "relevant transaction".

4. A dwelling has become or ceased to be a composite dwelling or where, continuing to be a composite, there has been a change in the domestic/non-domestic balance of the dwelling.

5. There has been a "material reduction" in the value of a dwelling, caused (in whole or in part) by the demolition of any part of the dwelling.

6. There has been a "material reduction" in the value of a dwelling, caused (in whole or part) by any change in the physical state of the dwelling's locality.

7. There has been a "material reduction" in the value of a dwelling, caused (in whole or part) by any adaptation of the dwelling to make it suitable for use by a physically disabled person.

8. A mistake was made when altering the list for any of the above reasons.

9. A clerical error requires correction.

3. Definition of "Material increase"

This means "any increase in the value of a dwelling which is caused (in whole or in part) by any building, engineering or other operation carried out in relation to the dwelling, whether or not constituting development for which planning permission is required." (Section 24(10) LGFA 1992)

(NB. Changes in locality in isolation do not constitute material increases though the physical state of the locality needs to be taken into account at relevant dates.)

4. Definition of “Relevant transaction”

This is defined as "a transfer on sale of the fee simple, a grant of a lease for a term of 7 years or more, or a transfer on sale of such a lease." (Section 24(10) LGFA 1992).

The Dictionary of Law defines a "transfer" as "the conveyance of title or other interest in property from one person to another e.g. by sale or gift". A sale is defined as "a contract for sale of goods whereby the seller transfers or agrees to transfer the property or goods to a buyer for a money consideration called the price".

A Scottish case provides guidance on the difference between a sale and a gift. Lord Hamilton in the Grampian Valuation Joint Board Assessor v Macdonald case said that ‘…It was material to distinguish between a sale on the one hand and a transfer of property on the other…’ and although the circumstances are somewhat different I think it is tolerably clear that an inheritance is not a purchase/sale arrangement and it cannot be a relevant transaction. For a sale to take place there must be some form of consideration, either money or money’s monetary consideration, this requirement will not be satisfied. Since no sale within the definition of Section 24(10) has taken place, the band cannot be altered because of a "material increase".

Notes:

● Transfer of shares are not to be treated as relevant transactions, See CTM Section 2 part 3.

● The sale of a fee simple subject to a long leasehold interest for consideration does constitute a “relevant transaction” and if two properties are exchanged, even with little or nil equality of exchange consideration that transaction will fall within the definition.

● A "right to buy" purchase will be a "relevant transaction", even though the taxpayer in occupation of the dwelling remains unchanged.

● Both the purchase of additional land and the sale of part of the existing hereditament (for example, the sale of part of the garden) is not a relevant transaction, but instead constitutes the coming into existence of a new dwelling because the boundaries of the hereditament have changed. The land occupied as evidenced by the new curtilage has changed, and thus a new dwelling has come into existence. This follows the principle laid down in a the Rating Case of Baker (VO) v Citibank NA (RA 2007 93), where it was decided that new hereditaments came into existence every time additional floor space was added, which was outside the previous boundaries. This requires the new hereditament to be valued as a new dwelling, taking into account the physical characteristics of it at the date of valuation, and taking it outside the “material increase”, “relevant transaction” provisions which apply only to the alteration of existing “dwellings”.

Inheritance of property

Where an improved dwelling with the improvements that would normally be considered amounting to a “material increase” is inherited , the transfer on inheritance should not be considered a relevant transaction.

Receipt of property by gift

Where an improved dwelling with the improvements that would normally be considered amounting to a “material increase” is received by way of gift, the transfer by gifting should not be considered a relevant transaction.

5. The Date(s) at which the Size, Layout, Character of a Dwelling and its Physical Locality requires consideration

When carrying out a valuation for any of the reasons in section 2 above the size, layout, character of a dwelling and its physical locality require to be viewed as they existed at the specific date(s).

These date(s) are detailed in Regs 6(2)(d), 6(3) and 6(3A) of The Council Tax (Situation and Valuation of Dwellings) Regulations 1992 as amended by The Council Tax (Situation and Valuation of Dwellings) (Amendment) Regulations 1994. They are summarised in Appendix 1 to this note.

6. Effective dates

An effective date is the date at which any change in band becomes effective for charging purposes, and is often different from material dates used in valuation for establishing physical characteristics.

A summary of effective dates appears in CTM Section 2 appendix 2.3. Practical applications are set out in the examples below:

REASON FOR VALUATION:

1. Dwelling was omitted in error from compiled list or its initial entry in the compiled list is thought to be incorrect.

When carrying out a valuation for either of these reasons all physical factors require consideration as they existed at 1 April 1993.

Therefore if a property was improved between 1 April 1991 and 1 April 1993 the question to be asked is, if this improvement had existed at 1 April 1991, for how much would the property have sold at that time?

  • Effective date omission: date of omission 1 April 1993.
  • Effective date error: date of schedule if increase, date of original entry if decrease.

2. Insertion of a new dwelling.

Example (a). The completion notice issued in respect of a new dwelling indicates that the property was completed on 3 June 2007.

The date at which all physical factors are to be considered is the 3 June 2007 (the day stated on the completion notice).

It important to remember that the physical state of the locality of many new estate dwellings often greatly improves as the larger development nears completion and this should be allowed for when considering what it would have fetched if sold on 1 April 1991.

Effective date: date of coming into existence of dwelling.

Example (b). A piece of garden land is purchased from a neighbour and a new boundary fence erected. The boundaries of the hereditament have changed, and thus a new dwelling has come into existence that was not occupied before. The additional land together with the former dwelling becomes a new dwelling. The property whose land is sold, also has new boundaries after the transfer and also becomes a new dwelling.

Effective date: Date of coming into existence of new dwelling, ie date of the land transaction.

3. There has been a "material increase" and "relevant transaction".

Example. A property has a new kitchen installed on 23 November 2006 and a swimming pool added in February 2007 before being sold on 14 June 2007.

When valuing the property to decide whether it’s banding should be increased, its size and layout and all other physical factors require consideration as they existed at 14 June 2007 (the day on which the sale was completed). Therefore when deciding what the property would have sold for at 1/4/91 it is necessary to assume that it had both the kitchen extension and the swimming pool at this time.

Effective date: date of schedule alteration (post 1 April 2007).

4. Dwelling has become or ceased to be a composite dwelling or, in the case of a dwelling continuing to be a composite, where there has been a change in the domestic/non-domestic balance of the dwelling.

Example. A taxpayer stops using a ground floor room in her home as a hairdressing salon and begins using it as a bedroom on 24 November 2004.

When valuing the property to decide whether it’s banding should be increased, its size and layout and all other physical factors require consideration as they existed at 24 November 2004 (the day when the circumstances giving rise to increase in the domestic use occurred). Therefore when deciding what it would have fetched at 1 April 91 it is necessary to assume that the ground floor room was included and reflects any additional value which it would have had.

Effective date: date circumstances arose: 24 November 2004.

5. "Material reduction" caused by the demolition of part of a property.

Example. A taxpayer demolishes his garage on 1 November 2006 and has no intention of rebuilding it.

When valuing the property to decide whether it’s banding should be reduced, its size and layout and all other physical factors require consideration as they existed at 1 November 2006 (the date the demolition occurred). Therefore when deciding what it would have fetched at 1 April 1991 it is necessary to assume that it had no garage.

Because all physical factors must be taken into account, if, since the Valuation List was compiled or last altered the above dwelling had been substantially improved, these improvements would also require consideration and to be offset against any proposed reduction (but not so as to increase the band).

Effective date: date the change occurred, 1 November 2006.

6. "Material reduction" caused by the adaptation of a dwelling to make it suitable for use by a physically disabled person.

Example. The taxpayer finishes installing a chairlift and adapting the bathroom for use by a disabled parent on 23 February 2006.

When valuing the property to decide whether it’s banding should be reduced, its size and layout and all other physical factors require consideration as they existed at 23 February 2006 (the date the adaptation occurred). Therefore when deciding what it would have fetched at 1 April 1991, it is necessary to assume that it had a chairlift and a specially adapted bathroom.

Effective date: date the adaptation completed, 23 February 2006.

7. "Material reduction" caused by a change in the physical state of the dwellings locality.

Unlike any of the situations above when carrying out a valuation as a result of change in the physical state of a dwelling's locality, the size, in this example, layout and character of the dwelling is always considered at one date and its locality at another.

Example (i). A new sewage treatment plant opens close to a dwelling on 4 July 2007. The banding of the dwelling was last altered following the sale of that dwelling on 4 February 2004 when improvements carried out since 1 April 1993 were reflected.

Regulation 6(3)(b)(ii) states that in a case where there has been a previous alteration of the list in relation to that dwelling then you must assume that the size, layout, and character of the dwelling were as on the date from which that alteration had effect.

In the case of a "material increase" followed by a "relevant transaction" - the sale of the dwelling on 4 February 2004 - then the material date is the date of sale, and this is the date on which the physical characteristics of the dwelling must be considered.

The state of the locality is to be considered at 4 July 2007 - the date when the new sewage treatment plant opened (Regulation 6(3)(a) of the Order).

Therefore when deciding what it would have fetched at 1 April 1991 it is necessary to assume that there was a sewage treatment plant nearby and that the dwelling itself was as it existed as at 4 February 2004.

Effective date: for reduction, date physical change of locality occurred – 4 July 2007.

Example (ii). A new sewage treatment plant opens close to a dwelling on 4 July 2007. The banding of the dwelling has not been altered since Council Tax came into force although it was sold on 23 January 2004. (The banding was not increased because the improvements made were limited).

When valuing the property to decide whether it’s banding should be reduced, the date at which the dwellings locality should be considered is 4 July 2007 (the date of the change of the locality). The date at which the size layout and character requires consideration is 23 January 2004 (the date of the previous relevant transaction not giving rise to an alteration).

Therefore when deciding what it would have fetched at 1 April 1991 it is necessary to assume that there was a sewage treatment plant nearby and that the dwelling itself was as it existed as at 23 January 2004. In this example therefore, the value of any improvements, as existing at the previous relevant transaction date, would be set against the effect of any reduction in value, even though they did not trigger a band increase at the time.

Effective date for any reduction: date physical change of locality occurred – 4 July 2007.

Example (iii). A new sewage treatment plant opens close to a dwelling on 4 July 2007. The banding of the dwelling has not been altered since Council Tax came into force.

When valuing the property to decide whether it’s banding should be reduced, the date at which the dwelling's locality should be considered is 4 July 2007 (the date of the change of the locality). The date at which the size layout and character requires consideration is 1 April 1993 (as there has been no previous alteration or "relevant transaction" giving rise to an alteration).

Therefore when deciding what it would have fetched at 1 April 1991 it is necessary to assume that there was a sewage treatment plant nearby and that the dwelling itself was as it existed as at 1 April 1993.

Effective date: date physical change of locality occurred - 4 July 2007.

8. Correction of a mistake which was made when altering the list on account of any of the reasons given in Nos 1 - 7 above.

Example (i). Band increased following material increase and relevant transaction following circumstances detailed in the example given in reason 3 above. Taxpayer makes proposal challenging the alteration.

When valuing the property to decide whether it’s banding should be reduced, its size and layout and all other physical factors require consideration as they existed at 14 June 2007 (the day which was applicable when the previous alteration was made).

Effective date: Increase in band - date of schedule alteration.

Effective date: Reduction in band - date previous alteration had effect.

Example (ii). Band reduced following change in the physical state of the dwelling's locality as detailed in the example (iii) given in reason 7 above. The Listing Officer subsequently becomes aware of improvements made to the property that were carried out prior to 1 April 1993.

When valuing the property to decide whether it’s banding should be increased, the date at which the locality requires consideration is 4 July 2007 (the date applicable in respect of previous alteration). The date at which the size layout and character requires consideration is 1 April 1993 (the date which was applicable when the previous alteration was made).

9. Correction of a clerical error.

Example (i). Band (not altered since the List came into force on 1 April 1993) increased due to clerical error.

When altering the list to correct the clerical error the dwelling's size, layout and all other physical factors should be considered as they existed at 1 April 1993.

Example (ii). Band reduced and list altered following reduction in value caused by circumstances detailed in reason 5 above. A year later the list is again altered, this time as a result of a complete error.

When altering the list to correct the clerical error the dwelling's size, layout and all other physical factors require consideration as they existed at the day when the list was altered because of reason 1, 2, 3, 4, 5, 6, or 7. In this case 1 November 2006

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