Inheritance tax manual - Section 27 - Part 1 : Initial Appraisal Cases

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Part 1 : Initial Appraisal Cases

27.2 General

Most references from HMRC(IHT) will come from Primary Compliance and Support (PC&S). Such cases will normally be referred on Form VOA 1 and these should initially be registered as type 177/01.

Cases where HMRC(IHT) has already opened an enquiry will be referred to the VOA by their Compliance Group and these will normally be referred on form VOA 2 (unless they have been routed via the Initial Appraisal Unit). Such cases should also initially be registered type 177/01; unless HMRC(IHT) has requested specific advice, in which case they should be registered as type 180/01 or 185/01, as appropriate.

On receipt of the case papers, the case should be allocated a complexity weighting (see Section 26 para 26.32) and this should be clearly written on the top right hand corner of the lead sheet of the papers. It is appreciated that, at this stage, it will not always be possible to identify all the criteria outlined in Section 26 para 26.32 (e.g.. where the valuation is likely to incorporate an addition for "hope" or "marriage" value) and, accordingly, scope is given to amend the complexity weighting at later stages in the life of the case (see 27.14 below). For procedure on receipt of Referred Back references, see 27.81 below.

27.3 Purpose of the Initial Appraisal

The purpose of the Initial Appraisal is for the DV to determine whether, based on reasonable assumptions made from the desk, the figure returned by the parties is acceptable or whether it requires further investigation.

Although some limited contact with the parties takes place at this stage (see 27.6 below), this is purely for the purpose of obtaining background information in respect of proposed or completed sales. Valuations should not be discussed at the Initial Appraisal stage - unless there has been an intervening sale (see para 27.8 below). HMRC(IHT) should be advised whether the parties have been contacted, when the DV makes the Initial Report (see 27.9 below).

27.4 Time Limits

The Initial Appraisal must be completed within 20 working days of receipt. Within this period, the case must either be reported to HMRC(IHT) (see 27.10-12) or HMRC(IHT) advised that it has been reclassified as a Valuation case (see 27.14). In practice, most Initial Appraisals should be completed well within this time limit and, in this respect, it is important to note that, in the Service Level Agreement with HMRC(IHT) for the Financial Year 2006-7, the VOA has contracted to complete Initial Appraisals within an average time of 12 working days from receipt.

27.5 Procedure

As mentioned at 27.3 above, the Initial Appraisal is essentially a desk based exercise. The DV is required to form a view as to whether the figure returned by the parties appears reasonable. This view should be based on the caseworker's own knowledge of the area in which the property is situated and from an examination of relevant office records. These records will include:

  • rating and council tax details (in England and Wales only)
  • Digital Maps, DEFRA plans, Geological plans etc.
  • Any Photographs held on VO Photographer
  • details of sales of comparable properties. These will be obtained from a number of sources including the COVO system, auction results and other office records
  • copies of planning records including Unitary Development Plans
  • press reports
  • any other records

Because no paper records are held at the Nottingham Initial Appraisal Unit (see section 26 para 26.19), only electronic records are used there (namely coding details held on the Central Database, Digital Mapping, VO Photographer etc). Similarly, in order to save time in file assembly, caseworkers in local offices should only have recourse to electronic records wherever possible.

Finally DVs must ensure that the Appraisal is not too time consuming. HMRC(IHT) fully accepts that cases which are reported at this stage will be those where a decision can be effectively taken from the desk or with minimal enquiry - normally cases involving single houses with little development potential and where comparables are not too difficult to find.

27.6 Contact with Parties

Providing HMRC(IHT) has not stipulated the parties should not be contacted, caseworker support should contact the parties to ascertain the position in respect of any sales. The opportunity should also be taken at this stage to request any information missing from the papers, e.g. valuations.

Any contact with the parties should be by telephone but if either the party or the caseworker is deaf or hard of hearing, contact can be made in writing, or the minicom telephone service can be offered if the party has this facility. Language line may also be used as a telephone interpreting facility for non-English speakers, in order to save time, the parties should be encouraged to fax copies of any further information required; or, if the property is on the market for sale via an agent, copies of the particulars can be down-loaded from the internet, where these are available.

Full notes of any discussions with the parties should be made (the Sale Contact Sheet, available from the Caseworker Support Material can be used for this purpose) and should be signed and dated by the person conducting the call.

The appraisal must not be unduly delayed because information is required and if nothing is received within 5 Working Days of the initial request, advice should be sought from the caseworker as to how to proceed.

If it is ascertained that the property has sold, the DV should proceed in accordance with 27.8 below. If contact is made with the parties during the Initial Appraisal, DVs should also note the instruction at 27.13 below.

27.7 Valuation Tolerances

It is appreciated that, when considering whether a returned figure is reasonable, caseworkers will often decide to take no further action if it falls within what they consider to be normal valuation tolerances.

Valuation tolerances are widely used throughout the surveying profession because it is generally recognised that valuation is not a precise science and, short of exposing a property to the market, it is normally impossible to judge precisely what a purchaser would have paid for it at a particular point in time. The valuer may, therefore conclude that any value falling within a given range is reasonable.

It is important to avoid a mechanistic approach when applying tolerances. This is because it is normally the case that the more difficult a property is to value, the wider the range of tolerance is likely to be. The range band will vary with regard to such factors as type of property, availability of comparable evidence, state of repair, development prospects etc.

Caseworkers should employ caution when using tolerances, especially in the case of high value properties.

Finally, when applying tolerances caseworkers should also bear in mind the rate at which tax will be charged. HMRC(IHT) will advise on Form VOA 1 or VOA 2 when tax is to be charged at a rate other than 40% (see Section 26 para 26.15). In practice, this will be in cases involving:

  • Failed Potentially Exempt Transfers where tapering relief is available (see Section 4 para 4.23)
  • Immediately chargeable lifetime transfers where tax is charged at 20% (see Section 4 para 4.1)
  • Settled property (see Section 8). In particular DVs should note Section 8 para 8.37 regarding the taxing of discretionary trusts - the maximum rate of tax is 6%.
27.8 Cases where property has sold

Where it is ascertained that an item of real property within a deceased's estate has been sold at a price different from the returned figure, and either the estate is in duty or adopting the sale price would bring it into duty, the DV can ask the parties whether they wish to revise the returned figure. The parties are then likely to respond in one of three ways, namely:

  • they may wish to substitute the sale price for the returned figure
  • they may wish to maintain the returned figure and not adopt the sale price
  • they may wish to adopt neither the sale price nor the returned figure and, instead, suggest an alternative figure.

Once the parties' proposals are known it is up to the DV to decide whether, based on office records and information available, they are acceptable (NB. 27.31 below re sales in a rising market). If they are acceptable, and there are no other items outstanding, the case should be reported to HMRC(IHT) on Form VO 1120 in accordance with 27.10 below. If they are not acceptable, or there are other items outstanding where the returned value cannot be accepted, the DV should proceed in accordance with 27.14 below.

Completion of Initial Appraisal

27.9 General

Once the DV has completed the Initial Appraisal, an Initial Report must be completed and emailed to HMRC(IHT), using Form VO 1120. The email should be sent to the email address shown on form VOA 1 or 2 and the "Date of VO 1120 dispatch" on form VOA 1 or 2 should be completed.

Form VO 1120 (see Appendix 4) provides two options. These are:

  • No question need be raised.
  • The value returned cannot be accepted on the evidence presently available. The matter will now receive a full evaluation and a report issued as soon as possible.

HMRC(IHT) also needs to be notified of details of any item which has sold since, following the sale of an item, the instalment option for paying IHT is not open to the parties.

At the same time the DV should complete the 3 boxes at the base of form VOA 1 or VOA 2 (see 27.10 and 27.14 below with regard to the completion of the “valuation accepted” box).

A copy of the VO 1120 and the sent email to the HMRC(IHT) Mailpoint should be retained on the file, for audit purposes.

NB. Occasionally HMRC(IHT) will request valuations, under the same reference, at different dates. Accordingly the DV must ensure that the Nature of event and Date of event boxes are completed before sending form VO 1120 to HMRC(IHT). Also for Part cases within a single DV unit area (see Section 26 para 26.30), caseworkers must ensure only one VO 1120 is sent to HMRC(IHT) (normally by the co-ordinating caseworker).

27.10 Tax-paying estates where returned figure can be accepted

In tax-paying estates if, either from knowledge of the property or from office records, the DV concludes that either the figure returned or, a figure subsequently offered by the parties in accordance with 27.8 above, does not merit further investigation, reply (a) of VO 1120 should be completed and a tick inserted in the “Value accepted” box on Form VOA 1 or VOA 2.

NB. In multi-property cases where only some of the returned figures can be accepted, the DV should still complete this box and specify those item numbers (using the same numbering as appears on Form D12 or IHT 37) in respect of which values have been accepted; however, a cross should be inserted in the “Value accepted” box on Form VOA 1 or VOA 2. See para 27.14 below with regard to the completion of VO 1120 for those items where values cannot be accepted.

In addition, if any item has sold, details of the sale must be inserted in the Property sales section as follows:

i) where the sale price is the same as the returned figure

the sale price should be inserted in both the “sale price” and “value accepted” boxes

ii) where the sale price is to be substituted for the returned figure

the section should be completed as in i) above

iii) where an alternative figure to the sale price is to be substituted for the returned figure

the sale price should be inserted in the “sale price” box and the value offered should be inserted in the “value accepted” box.

NB. Once the DV has advised that a case does not warrant further investigation, HMRC(IHT) will treat it as being settled and will not re-open it unless either the parties request that a higher sale price should be substituted for the returned figure or if there is reason to suppose that the valuation was based on erroneous information (see Part 5 below).

27.11 Sub-threshold estates

The procedure to be followed in sub-threshold estates will depend on whether the case is a single DV unit case or a multi-district case (see Section 26 para 26.24).

i) Single DV unit cases

Where, from knowledge of the property or from office records, the caseworker concludes that any likely increase in value will not bring the estate over the tax threshold, reply (a) of VO 1120 should be completed. In addition, if any item has sold, details of the sale should be inserted in the “sale price” box of the Property sales section and the “value accepted” box should be left blank.

ii) Multi-district cases

Where, from knowledge of the property or from office records, the caseworker concludes that any likely increase in value will not bring the estate over the tax threshold, before using reply (a) of VO 1120, the caseworker should first consult with any other DV units involved (see Section 26 para 26.29), to ensure that any increases in their valuations will not have the effect of bringing the estate into tax.

If the total valuations do not bring the estate over the tax threshold, or if it is concluded that the value(s) returned can be accepted, the caseworker should proceed in accordance with (i) above. If it is concluded that the value returned cannot be accepted, the caseworker should proceed in accordance with 27.14 below.

27.12 Prior agreed cases

Where the DV has already prior agreed values in accordance with Section 31, reply (a) of VO 1120 should be completed and the following words should be inserted immediately after it: “The returned value has been prior agreed with the parties”.

If, notwithstanding the proviso in Section 31 para 31.10, any item has sold, details of the sale should be inserted in the Property sales section.

27.13 Advising parties where values are accepted

If the returned value can be accepted in accordance with 27.10 or 27.11 above and contact has been made with the parties, in order to comply with the VOA Charter Standard Statement, the DV must advise the parties that the papers have been returned to HMRC(IHT). The DV should be careful to avoid giving the impression that the returned value has been agreed but, if pressed, should state that it has been decided not to question the returned valuation.

27.14 Returned values cannot be accepted

Where the DV decides that: either based on available information the returned value of any item cannot be accepted; or, there is insufficient information to decide whether the returned value of any item can or cannot be accepted, the file should be noted accordingly and the case should be reclassified as a Valuation case (Type 180/01 or 185/01) and, if not already done so, under 27.6 above, first contact should be established with the parties (see 27.20 below). N.B. for cases where the Initial Appraisal has been carried out by the Nottingham Initial Appraisal Unit, the case type will be changed and the case re-registered at the Registration Centre(s) for the DV Unit(s) involved (see the Process Maps) for further details).

Reply (b) of VO 1120 must be completed and emailed to HMRC(IHT) and a cross inserted in the “Value accepted” box on Form VOA 1 or VOA 2. Additionally, in multi-property cases where the returned values of some items can be accepted, Reply (a) should also be completed and the numbers of those items (from Form D12 or IHT 37) should be specified. Consideration should also be given at this stage as to whether the complexity weighting (see Section 26 para 26.32) allocated to the case requires amendment (e.g. because it has been ascertained that the valuation is likely to incorporate an addition for "hope" or "marriage" value). The caseworker should then proceed in accordance with Part 2 below.

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