HMRC Chattels Valuation Fiscal Forum

Attendees

Mike Fowler - Shares and Assets Valuation (SAV)
Robert Dawes
Dave Goulsbra
Dee Atkin
Susan Johnson - Christie's
Anastasia Tennant
Wendy Philips - Sotheby's
Melissa Papadakis
Mike Neill - Bonhams
Nick Parnell
Chris Ewbank - RICS
Michael Hoare - NAG
Michael Hore - NAVA
Christopher Stone - NAVA/SOFAA
Carolyn Omell

Apologies

Paul Davidson - Bonhams
Steven Hill - NAVA
Nicholas Major - NAG
Clive Stewart-Lockhart - SOFAA

Executive summary

1. Introductions and apologies

2. Matters arising

3. HM Revenue & Customs an update

  • Security
  • HM Revenue & Customs vision
  • Shares and Assets Valuation (SAV) Edinburgh closed in April 2008
  • 'Workforce Change' Programme
  • Budget
  • New Capital Gains Tax procedures
  • Tribunals Reform

4. Performance and workloads

  • Structure and administration
  • Statistics provided on workloads and results

5. Multiple valuations

  • How do SAV select items for enquiry when there is a large number to choose from?

6. Use of indices

  • Which databases are the most useful?

7. Valuation of chattels sold shortly after the death

  • Relevance of sale price to probate value

8. Any other business

  • Appointment of external experts
  • Transferable nil rate band

9. Date of next meeting

  • November or December 2009 in London

Minutes

The meeting was held at room G/14 HM Treasury, 1 Horse Guards Road London and was chaired by Mike Fowler.

1. Introductions and apologies

Mike Fowler welcomed all attendees to the third Chattels Valuation Fiscal Forum.

2. Matters arising

No matters were raised from the previous minutes.

3. HM Revenue & Customs - an update

Mike Fowler provided an update on changes in HM Revenue & Customs (HMRC) since the last Chattels Valuation Fiscal Forum.

Security

The loss of Child Benefit data in November 2007 prompted the resignation of the Chairman and had a far reaching impact on the department. Security is now extremely tight and everyone is asked to bear with HMRC if they are inconvenienced by security checks.

The vision

Mike Clasper (ex British Airports Authority) joined HMRC as new Chairman in August 2008 and Leslie Strathie (ex Chief Executive of Job Centre Plus) joined as Chief Executive Officer in November 2008. The new HMRC Board has launched a vision statement and this has now been rolled out throughout HMRC. The vision statement was copied to all attendees and Mike Fowler summarised what HMRC are striving to achieve. As below:

HM Revenue & Customs purpose, vision and way

Our purpose

  • We make sure that the money is available to fund the UK's public services.
  • We also help families and individuals with targeted financial support.

Our vision

  • We will close the tax gap, our customers will feel that the tax system is simple for them and even-handed, and we will be seen as a highly professional and efficient organisation.

Our way

  • We understand our customers and their needs.
  • We make it easy for our customers to get things right.
  • We believe that most of our customers are honest and we treat everyone with respect.
  • We are passionate in helping those who need it and relentless in pursuing those who bend or break the rules.
  • We recognise that we have privileged access to information and we will protect it.
  • We behave professionally and with integrity.
  • We do our own jobs well and take pride in helping our colleagues to succeed.
  • We develop the skills and tools we need to do our jobs well.
  • We drive continuous improvement in everything we do.

SAV Edinburgh

Following the closure of SAV Edinburgh in April 2008 all chattels valuation work is now being undertaken in SAV Nottingham.

Nick Parnell said he had recently had an exchange with Inheritance Tax Edinburgh about an exemption case and Melissa Papadakis added that she had recently received valuation questions from Inheritance Tax Edinburgh. Mike Fowler said that exemption matters continue to be the responsibility of the Inheritance Tax section but confirmed that all valuation work ought now to be handled in Nottingham. Susan Johnson asked if SAV would like to be informed if any attendees received valuation correspondence from offices other than SAV. Mike Fowler replied that this would be helpful.

Workforce Change Programme

HMRC are currently involved in a 'Workforce Change' Programme which is aimed at maximising the efficient use of HMRC accommodation. SAV will remain in Nottingham but will be moving to the adjacent building, Ferrers House, in spring 2009. It is hoped that any disruption to service will be minimal.

Budget

Year on year 5 per cent budget cuts continue until at least 2011. SAV are not immune to these cuts and reducing staff numbers have put remaining staff under pressure. Efforts are being made to streamline processes but some arrears have arisen and the target of answering 80 per cent of correspondence within 15 days is not currently being reached.

New Capital Gains Tax procedures

Two Risk and Intelligence Service (RIS) units are currently being set up to focus on capital gains returns for individual taxpayers. One is in Manchester and one in Edinburgh. It is hoped that this reorganisation will result in more experienced staff conducting the initial review of CG returns and a higher quality of referral to SAV.

Nick Parnell asked if SAV rely on other HMRC offices to refer chattels cases to them. Mike Fowler confirmed this and advised that the role of SAV is to provide specialist input into cases which are 'owned' by other HMRC offices.

Nick Parnell asked if the manning of the RIS teams by more experienced staff is expected to increase the number of referrals to SAV. Mike Fowler explained that the expectation is that the Capital Gains Tax RIS units will improve efficiency by only referring cases which are likely to benefit from SAV input. The numbers might not go up but the quality of the referrals should.

Anastasia Tennant asked if all Post Transaction Valuation Check (PTVC) requests were referred to SAV. Mike Fowler said that offices receiving PTVC requests do a preliminary check and forward all cases where a valuation is agreed to be necessary to SAV. He stressed that all PTVC requests should be sent to the office dealing with the taxpayer's returns in the first instance.

Tribunals Reform

As from April 2009 the General and Special Commissioners will be replaced by a two tier tribunal system. Most cases will be heard by the first tier although there are provisions for a very small number of cases to be heard, in the first instance, by the upper tier. It is anticipated that most of the cases that are currently listed before the Special Commissioners will be heard by the first tier tribunal.

Anastasia Tennant asked if all chattels cases will be heard by the first tier tribunal in the first instance. Mike Fowler answered that this is what is anticipated although there may be exceptions for the most complex cases.

Wendy Philips asked how many cases proceed to litigation. Mike Fowler said that several cases are in the pipeline but very few actually proceed all the way to litigation.

4. Performance and workloads

Robert Dawes explained that since the last forum Jo Beard and Lesley Toye have left his team and Jon Rowles has joined. There are now six valuers in the team. Four (Dee Atkin, Nesta FitzGerald, Dave Goulsbra and John O'Toole) deal with chattels valuations and two (Jerry Goodrich and Jon Rowles) deal with bloodstock valuations. Robert explained that he had eight valuers in his team two years ago reducing to seven last year and now six this year. This is partly due to budgetary constraints and partly due to a re-organisation within SAV. What this means in practice is that each valuer now has a bigger allocation of chattels valuations with a consequential reduction in the number of other valuations.

Chris Ewbank asked if the chattels valuers in the team just value chattels. Robert Dawes explained that they all undertake unquoted share valuations in addition to their chattels work. In previous years the work was split 1/3rd chattels to 2/3rd shares valuation but now it is closer to a 50:50 split.

Robert Dawes provided the following statistics:

  • SAV settled 1,483 chattels valuations in the last tax year (2007-08) involving a total capital value of £81,048,071, and a total capital change of £5,991,654.
  • During the period 1 April 2008 to 31 October 2008 SAV have looked at chattels valuations involving 338 different taxpayers (Capital Gains Tax and Inheritance Tax). Of that figure, 237 cases (70 per cent) have been risk assessed out immediately, usually within a week of being referred to SAV.
  • During the period 1 April 2008 to 31 October 2008 new files have been created for 101 taxpayers (51 involve Inheritance Tax and 50 involve Capital Gains Tax). These figures are for individual taxpayers and it should be noted that enquiries may be raised about several different chattels for each taxpayer.
  • The average number of chattels valuations per file is about 10. Even some of these valuations will also be risk assessed out once the valuer has had a chance to give the professional valuation a close and detailed examination. According to our statistics, the total percentage closed on risk assessment for the 7 months ended 31 October 2008 was 93.6 per cent. In other words, less than 10 per cent become negotiation cases.
  • Of the files taken up for enquiry, 88.62 per cent were settled within 12 months and the strike rate in respect of chattels valuations taken up for enquiry was 75.61 per cent.
  • The number of valuations settled between 1 April 2008 and 31 October 2008 was 636, the total capital value agreed was £51,428,476 and the capital change was £1,355,628. Wendy Philips asked if the adjustment was in HMRC's favour and Robert Dawes confirmed that it was.
  • A disappointing statistic is the median time taken to close a chattels valuation on negotiation which is now 13.5 months, up from 8.25 months at this time last year.

Robert Dawes reminded all present that fast responses from both parties are necessary if cases are to be settled quickly. He said that, having reviewed a number of files this year, he noticed that SAV's enquiries have occasionally been met by long periods of silence. Attention was drawn to the delays caused when taxpayers or agents rely on unsupported expert opinion. One case was described where, despite regular reminders, SAV had to wait six months for a reply and all that was received at the end of that period was a letter that insisted that the original valuation proposed must be correct because the valuer is an expert.

This kind of response was felt to impede progress and contribute to the fact that there are currently seven cases in his team where negotiations have been on foot for more than 18 months, four of which are chattels cases. He stressed that, much as SAV are currently falling short of their 15 day post turnaround target figures from April - October 2008 show 75.3 per cent of post dealt with within 15 working days and 98.14 per cent of post within 40 days.

Chris Ewbank asked if most valuations are provided by professional valuers rather than individuals. Robert Dawes confirmed that this is the case in the vast majority of cases seen by SAV.

Anastasia Tennant commented that she sometimes finds that SAV do not comment on the comparables suggested or explain why they are not acceptable. Robert Dawes acknowledged that any valuation argument deserves a considered response and asked that any case where SAV are not felt to be handling matters well be referred to him.

Melissa Papadakis felt that it would help if SAV stated why they felt a proposed value was unacceptable when initial enquiries were raised. Robert Dawes stated that, initially, SAV might not have very much information and might not even know exactly what the asset being valued is. In such circumstances SAV can initially do little beyond asking about the thought process that has gone into reaching the proposed value. It is assumed that, when preparing a valuation, notes are made that can then be reviewed.

Michael Hoare said that NAG requires all their valuers to keep comprehensive notes including such factors as the current gold price. He felt that an expert opinion without supporting evidence is of no value.

Wendy Philips asked why information attached to Capital Gains Tax returns does not always find its way to SAV. Robert Dawes responded that it is to be hoped that the new risk assessment procedures outlined by Mike Fowler will improve matters.

Mike Neill asked if communication via email is possible. Robert Dawes advised that email is not regarded as a totally secure means of communication and so SAV do not currently communicate on specific cases via email. It is, however, used to communicate general non-sensitive information.

Anastasia Tennant asked if SAV have considered joining shared workspace arrangements. Mike Fowler said that this is under consideration.

5. Multiple valuations

Susan Johnson had listed an agenda item asking how items are chosen for further scrutiny when there are a very large number of items returned. She felt that SAV might sometimes be inconsistent. Wendy Philips shared this view.

Dave Goulsbra explained that the SAV chattels risk assessor looks at all items with a returned value and selects those that are felt to be worth further scrutiny. The criteria may be value alone but might also be because the item is unusual, for example a piece of contemporary garden sculpture, and the risk assessor is unable to quickly come to an approximate value. There is no hard and fast rule and selection largely depends on the judgement of the risk assessor.

Dave Goulsbra advised that, having singled out a number of items, SAV then considers the returned values in the light of our information sources to see if, on the basis of the information provided, we can accept the value as being reasonable. Only if that is not possible do SAV write out seeking supporting evidence. The upshot is that in one estate we may be able to accept the vast majority of values returned whereas in another of similar size it may be very different.

Susan Johnson said that she had raised this issue as she has a case where SAV has raised questions about 40 paintings where many are by the same artist and so the issues involved are very similar. With the cost to the taxpayer in mind she wondered if SAV could consider other approaches rather than SAV investigating the value of every painting in detail. Dave Goulsbra expressed concern that agreeing items piecemeal could seriously delay matters. Wendy Philips asked if the value of a small number of items might be tested to give an indication of the accuracy of a very large return.

Mike Fowler said that, in theory, SAV would be content to identify a representative selection of chattels and apply the percentage change achieved to all similar chattels. In practice though chattels are not like rows of terraced houses and it is very unusual to be able to identify a significant number of chattels that are so similar that both sides agree that global adjustments should be made on the basis of any percentage adjustment achieved on a sample.

Occasionally the valuation adjustments agreed for a sample of items might give cause for concern about the true market value of the remainder. SAV adopt a pragmatic approach to such cases. Sometimes it transpires that the valuer has arrived at his values on the basis of a misconception of one sort or another and in such a case it might be judged appropriate to apply a global adjustment to all the returned items.

Nick Parnell asked if items valued at less than £500 are ever challenged and Susan Johnson asked if SAV do spot checks.

Dee Atkin confirmed that spot checks are undertaken and gave details of a case where an item returned at less than £500 was finally agreed to be worth very significantly more.

6. Use of indices

Art market indices

Dave Goulsbra gave a summary of previous discussions about SAV's use of indices - mainly as a risk assessment tool but also where there is a paucity of sales information. He acknowledged that there are drawbacks and limitations but it noted that it appears to be generally accepted that they are a useful tool and far more relevant than, say, the Retail Prices Index (RPI).

He advised that SAV's main sources of information are Art Market Research (AMR), Invaluable, Art Sales Index (ASI) and artnet.com.

Mike Fowler asked if anyone else had experience of using different sources and how useful and meaningful they had found them.

Anastasia Tennant said that discs are available from ASI for about £180 which are useful for providing information on sales up to 2005.

Chris Ewbank said that many indices do not go back very far. For example the Antiques Trade Gazette website only goes back a few years. Dave Goulsbra said that he has found that site almost impossible to use especially the search facility.

Carolyn Omell said that she had found artprice.com useful for paintings and sculpture.

Michael Hore asked if these sites are expensive. The general consensus was that AMR, in particular, is expensive. Mike Neill felt it too expensive for many of his members. Both Christie's and Sotheby's representatives felt AMR had shortcomings but was an essential valuation tool. Anastasia Tennant commented that it is used by the IRS.

Chris Ewbank asked if there was an alternative affordable source that could be used by people outside the main bodies in London. No alternatives were offered.

7. Valuation of chattels sold shortly after the death

Nick Parnell had raised an agenda item seeking clarification of SAV's policy in this area.

Mike Fowler said that SAV's position remained as set out in the minutes of the Fiscal Forum (FF) and Chattels Valuation Fiscal Forum (CVFF) as follows:

10 October 2005 FF minutes

'A valuation of a chattel will draw on all contemporaneous comparable sales information and if the chattel in question is sold shortly after the valuation date we would expect the sale price to effectively be a test of the validity of the valuation. If a chattel is valued at £1,000 one week and then sold for £1 million the following week Practitioners can expect HMRC to raise a few questions. It may be that there are very good reasons for the striking difference - or it may just be that the valuer got it wrong. Clearly the more distant the sale the more variables will enter the equation and the less significant the sale price will become.'

14 November 2007 CVFF minutes

'Invariably HMRC wait for items to be sold and accept the sale value but if, exceptionally, the sale value is not felt to be representative of the market value at the date of death then SAV will negotiate an agreed value.'

Nick Parnell wondered what sort of period HMRC had in mind when saying 'shortly after.' He cited a case that he was currently negotiating with SAV where he felt that the SAV valuer was not looking at contemporary evidence and sales in tandem. Dave Goulsbra advised that the SAV view is that all factors, including contemporaneous sales and market movements, should be taken into account. Wendy Philips said that it was important to investigate whether there were any market movements in the period between the valuation date and the sale.

Mike Fowler said that SAV do not have a fixed period beyond which a sale price will be deemed irrelevant. He referred to the judgement in Stenhouse's Trustees and indicated that he would expect less weight to be given to sale prices as the time between the valuation date and the sale increases.

Susan Johnson asked whether SAV take account of downward movement in the market value after the death. Robert Dawes said that SAV recognise all movements, whether they are upwards or downwards.

Susan Johnson noted that the Capital Gains Tax rate is now 18 per cent and the Inheritance Tax rate 40 per cent. As such if the assets of an estate are sold well within a relatively short period, there was an incentive for taxpayers to request that the lower original value put forward for Inheritance Tax purposes be accepted with 18 per cent tax paid on the gain.

Melissa Papadakis noted s171 IHTA 1984 and wondered how SAV might approach valuations in a situation where a painting owned by the artist increases in value as a result of the artist's death and is then sold. Dave Goulsbra commented that BR would be available on the death valuation and the Capital Gains Tax valuation would have to consider a base cost. No difficulties have yet arisen in this respect.

8. Any other business

Expert opinion

Anastasia Tennant asked whether there was a cut off for either the taxpayer asking for or SAV considering the appointment of an external expert, as she had recently had a case where she had been told that once a meeting had taken place with SAV this was no longer an option.

Mike Fowler replied that it is up to SAV whether or not they seek third party expert opinion and there is no cut off date.

Anastasia Tennant asked whether taxpayers could ask SAV to seek informal opinions. Mike Fowler explained that informal opinions are sometimes sought but the decision whether to do so is one for SAV management.

Transferable Nil Rate Band (TNRB)

Anastasia Tennant noted the following statement in the April 2008 Inheritance Tax & Trusts' Newsletter:

'The existing rules under which values ascertained for IHT purposes apply for CGT purposes will be changed so that where a value is ascertained solely for the purpose of ascertaining the amount of TNRB (transferable nil rate band), that value will not apply for CGT purposes'.

She asked whether, in cases where it was necessary to agree a value at the date of death of the first spouse, SAV would expect to receive an itemised list of chattels together with proposed values or whether a global valuation would suffice.

Mike Fowler answered that the assets that SAV get involved in valuing are all significant and so, when dealing with SAV, agents always need to provide sufficient information to enable all returned valuations to be checked.

9. Date of next meeting

Chris Ewbank asked if future meetings could be held in London.

With the exception of Nick Parnell all non HMRC attendees agreed that London was preferable.

The next meeting will be November/December 2009 in London.