Valuation of Property Portfolio for Transfer With The Aim of Mitigating Clients Tax Liability

Briefly, the case involved the valuation of a small investment portfolio of terraced properties Tyne and Wear.

My clients required a valuation in connection with the transfer of the portfolio. The aim of the exercise was to mitigate our clients tax liability.

The valuation issue under consideration was whether it was appropriate to provide discounted values on the basis that the properties were an investment portfolio.

In accordance with best practice, I referred to Guidance Note 3 of the RICS standards which deal with the valuation of portfolios or groups of properties.

In summary, I decided that it was correct to ascribe a single value to the whole group of properties as I considered that the portfolio would most likely be treated by the market as a single investment rather than as individual houses. When reporting it was important to confirm the portfolio had been valued on this assumption.

I further advised that if the market value of the single entity I reported were to be broken down into individual properties then this apportionment would not necessarily equate to the market values of the interests in the individual properties.

Once the basis of value was confirmed it was then important to decide what discount to apply to the individual market values.

The exercise was undertaken at the start of 2009 when the market was probably at its lowest ebb, and hence on the basis of the client’s tax planning and transfer plans, the timing was right for the transfer.

In order to support the valuations on an investment basis I had to consider the issue of residential yields. At the peak of the market, prime residential yields were 5%. As market values fell residential yields rose. Auction Data on investment sales, considered as the best evidence in these cases indicated average yields were in excess of 8%. This formed the basis of my valuation. The result of this valuation exercise meant that I could justify an overall reduction on the portfolio of 20%.

When valuing property portfolios it is important to undertake detailed market research and to adopt the correct valuation technique (following RICS Guidance) to produce a justifiable level of value.