Most property sales are arm's length transactions where the sale price is the market value and there is no dispute about the proceeds. But where CGT depends on a valuation — for a gift, a sale to a connected person, an inherited property, or a base-cost date like 31 March 1982 — HMRC may challenge the figure used.
When does CGT depend on a valuation?
A valuation is needed in the following situations:
Gifts: When you give a property away, the disposal is treated as occurring at market value. You do not receive cash, but CGT is calculated on what a buyer would have paid at that date.
Sales to connected persons: Sales between connected persons (family members, business partners, certain trusts) must use market value, regardless of the actual price paid. If you sell a property to your sibling for £50,000 when it is worth £200,000, the CGT is calculated on £200,000.
Inherited property: The base cost for inherited property is the probate value — the market value at the date of death. This is set by the estate's valuers at the time of probate. If you later sell, HMRC may question whether the probate value was correct.
Pre-1982 properties: For properties acquired before 31 March 1982, the base cost is the market value at that date. Establishing an accurate 1982 value requires historical evidence. See our guide on CGT on property bought before 1982 for more detail.
What HMRC's Shares and Assets Valuation service does
HMRC's Shares and Assets Valuation (SAV) service reviews valuations submitted in tax returns. For property, the SAV can request to review the market value used — whether for proceeds, base cost, or any other valuation point in the CGT calculation.
If SAV disagrees with the value you have used, they will propose an alternative. You (or your adviser) can either accept that alternative or negotiate. If agreement is not reached, the dispute goes to the First-tier Tribunal (Tax).
SAV reviews are most common for:
- High-value gifts and family transfers
- Probate values that appear inconsistent with market evidence
- Historical valuations (1982 or other dates) where records are sparse
What constitutes good valuation evidence
A CGT valuation must represent open market value — the price a willing buyer would pay a willing seller at arm's length, on the open market, with both parties having full knowledge of the facts.
For current market value, comparable sales evidence from around the date of disposal is the standard approach. Estate agents' appraisals, RICS valuation reports, and Land Registry transaction data are all used.
For historical valuations (1982 or earlier), evidence sources include:
- Historical Land Registry records (available online for older transactions)
- Historical estate agents' records (in some cases)
- RICS Red Book valuations using historical evidence
- Valuation Office Agency historical records
A professional RICS Red Book valuation is the most robust evidence you can provide. An estate agent's opinion letter is less authoritative.
How to avoid a valuation dispute
The most effective way to avoid an HMRC challenge is to obtain a proper market value appraisal at the time of the transaction and document the basis for the valuation. For high-value gifts or family transfers, a formal RICS valuation is worth the cost.
For probate values, the estate's solicitors and valuers typically handle this as part of the grant of probate process. A realistic market value (not artificially depressed) reduces the risk of both an IHT underpayment challenge and a future CGT challenge when the inherited property is sold.
What to do if HMRC challenges your return
If HMRC opens an enquiry into your CGT return because of a valuation question:
- Do not ignore the enquiry notice — respond within the time given
- Gather all supporting evidence for the valuation used
- Consider obtaining an independent RICS valuation if you have not already done so
- Consider whether the HMRC alternative is arguable or whether the gap is small enough to accept
LetsFile handles HMRC enquiries into returns we have filed. If you filed with us and receive an enquiry notice, contact us directly — the Chartered Accountant/Chartered Tax Advisor manages the response and any negotiation with SAV at no additional charge for the first 90 days after filing.