Buying Your Property — The Section 56(2)(x) Risk and the Bank Valuation Question
Before you complete a property purchase, understand the relationship between Stamp Duty Value, actual market value and your bank's mortgage valuation. An independent valuation can provide important evidence when the transaction value and official valuation differ.
Get Expert Advice →Section 56(2)(x) — The Buyer's Section 50C Mirror
Section 56(2)(x) can create a tax consideration for a property buyer where the purchase price is lower than the applicable Stamp Duty Value (SDV), commonly referred to as the circle rate.
Where the prescribed conditions are met, the difference between the SDV and the purchase consideration may be treated as taxable income from other sources in the relevant year.
The practical issue becomes more important where the circle rate is higher than genuine market value in the particular locality. In such circumstances, an independent FMV certificate can provide documented evidence of the property's open-market value, subject to the applicable statutory process.
Get Expert Advice →Is the Bank's Mortgage Valuation Accurate?
Banks generally commission their own empanelled valuers for mortgage valuation. The purpose of this valuation is primarily connected with the bank's lending decision and security assessment.
A bank valuation should therefore not automatically be assumed to be identical to an independent open-market FMV. Differences can arise because the valuation is being undertaken for a specific lending and risk-management purpose.
If the bank's assessed value is lower than the property's independently supported market value, the lower lending valuation can affect the amount of finance available to the buyer.
When a Lower Bank Valuation Directly Affects Your Loan
This is an illustrative example only. Actual lending limits, loan-to-value ratios, valuation methodology and sanction terms depend on the lender, property and individual case.
When an Independent Valuation Certificate Can Help
In some cases, a bank may consider an independent Government Approved Property Valuer's certificate where the bank's own valuation appears materially different from available market evidence.
Acceptance is ultimately a matter for the relevant lender and its internal credit and valuation process. Before commissioning a certificate specifically for a loan application, discuss with the bank's credit manager whether an independent valuation will be accepted in your particular case.
Ask the bank whether an independent valuation certificate will be accepted.
Confirm whether the valuer must be on the bank's approved panel.
Provide relevant title, area, location and property documents for assessment.
Compare the valuation evidence with the bank's stated assessment.
Buying Below the Circle Rate? Understand Your Valuation Position First.
Before completing your purchase or relying on a bank's valuation, understand the applicable Section 56(2)(x) considerations and the property's independent market value.
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