In England and Wales, where a person has died and Inheritance Tax is potentially due in respect to a property, one stage to determining the tax due, will be ascertaining the market value of the property at the valuation date on the basis of a deemed disposal.
This article will consider the process of ascertaining the market value of the property, more particularly, a typical house, in light of:
(a) section 160 of the Inheritance Act 1984 ('1984 Act');
(b) Akanwo v Revenue and Customs Commissioners [2018] UKUT 113 (LC); [2018] RVR 334; [2018] BTC 512 ('Akanwo'), a decision of PR Francis FRICS in the Upper Tribunal (Lands Chamber) on 10.4.18;
(c) Zabavnik v Revenue and Customs Commissioners [2021] UKUT 213 (LC); [2021] RVR 328 ('Zabavnik'), a decision of Mark Higgin FRICS in the Upper Tribunal (Lands Chambers) on 20.8.21;
(d) sections 221 to 224 (Part 8) of the 1984 Act.
In cases of dispute, the dispute will be between:
(a) personal representative ('PR') of the deceased (executor); and
(b) Her Majesty's Revenue and Customs (HMRC) Inheritance Tax Office.
The Valuation Office Agency (VOA) is an executive agency linked to HMRC. The VOA gives the government the valuations and property advice needed to support taxation and benefits.
Inheritance Act 1984
Section 160 of the 1984 Act is entitled 'Market Value' prescribes how the value of property is determined, for Inheritance Tax purposes. Section 160 of the 1984 Act reads:
'Except as otherwise provided by this Act, the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.'
This can be split into three parts:
(1) 'Except as otherwise provided by this Act,...'
(2) '...the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time;...'
(3) '...but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.'
It only need be said that:
(a) Part (3) seems to be a stipulation to stop assumptions being made, that a property will have a depressed, because the market is being 'flooded', on the valuation date, with, notional, deemed dispositions;
(b) Part (2) is the key part and contains, amongst other things:
(i) 'at that time' - meaning, the date of death, known as the valuation date;
(i) 'in the open market' - which sets down that the deemed disposal - the hypothetical sales transaction - to be taken to have taken place on the open market. The search then is to find the value the subject property notionally would have achieved on the open market. But merely describing the market as the 'open market' - and so what it is worth - being the Open Market Value, gives only the basic description of the legal environment / circumstances in which the deemed disposal is to be taken to have occurred.
In the open market - the 'Open Market Value'
In IRC v Gray [1994] STC 360 ('Gray') s.160 of the 1984 Act's predecessor, namely s.38 of the Finance Act 1975 (now obsolete), was under consideration (s.38 of the Finance Act 1975 and s.160 of the 1984 Act use almost identical wording[1]). Drawing on the history of this phrase, in previous incarnations of it in previous Acts of Parliament (it first appeared in section 7(5) of the Finance Act 1894), Hoffman LJ, at paragraph 4, said:
'The only express guidance which section 38 offers on the circumstances in which the hypothetical sale must be supposed to have taken place is that it was “in the open market.” But this deficiency has been amply remedied by the courts during the century since the provision first made its appearance for the purposes of estate duty in the Finance Act 1894. Certain things are necessarily entailed by the statutory hypothesis. The property must be assumed to have been capable of sale in the open market, even if in fact it was inherently unassignable or held subject to restrictions on sale. The question is what a purchaser in the open market would have paid to enjoy whatever rights attached to the property at the relevant date: Inland Revenue Commissioners v. Crossman [1937] A.C. 26 . Furthermore, the hypothesis must be applied to the property as it actually existed and not to some other property, even if in real life a vendor would have been likely to make some changes or improvements before putting it on the market: Duke of Buccleuch v. Inland Revenue Commissioners [1967] 1 A.C. 506 , 525. To this extent, but only to this extent, the express terms of the statute may introduce an element of artificiality into the hypothesis.'
Hoffman LJ in Gray went on to consider the characteristics of that: (a) market; and (b) assumed transaction[2], wherein, he said, at paragraph 5:
'In all other respects, the theme which runs through the authorities is that one assumes that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would be likely to have done in real life. The hypothetical vendor is an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant. The hypothetical buyer is slightly less anonymous. He too is assumed to have behaved reasonably, making proper inquiries about the property and not appearing too eager to buy. But he also reflects reality in that he embodies whatever was actually the demand for that property at the relevant time. It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable. The practical nature of this exercise will usually mean that although in principle no one is excluded from consideration, most of the world will usually play no part in the calculation. The inquiry will often focus upon what a relatively small number of people would be likely to have paid. It may have to arrive at a figure within a range of prices which the evidence shows that various people would have been likely to pay, reflecting, for example, the fact that one person had a particular reason for paying a higher price than others, but taking into account, if appropriate, the possibility that through accident or whim he might not actually have bought. The valuation is thus a retrospective exercise in probabilities, wholly derived from the real world but rarely committed to the proposition that a sale to a particular purchaser would definitely have happened.'
In Zabavnik, the Judge referred, at paragraph 31, to the above passage from Gray, with apparent approval.
Hoffman LJ added, at paragraph 6:
'It is often said that the hypothetical vendor and purchaser must be assumed to have been “willing”, but I doubt whether this adds anything to the assumption that they must have behaved as one would reasonably expect of prudent parties who had in fact agreed a sale on the relevant date. It certainly does not mean that having calculated the price which the property might reasonably have been expected to fetch in the way I have described, one then asks whether the hypothetical parties would have been pleased or disappointed with the result; for example, by reference to what the property might have been worth at a different time or in different circumstances. Such considerations are irrelevant.'
(Hoffman LJ gave further guidance, where there are large tracts of land, on joining and splitting land for the deemed disposal[2a])
The basis is that the whole world was free to bid. It would therefore be wrong to artificially ignore part of the market. For instance, ignoring the prospect of any would-be owner-occupiers' bids (see Zabavnik, paragraph 32)
Comparative method
Typically[2b], properties are valued by the comparative method, which involves considering evidence of sales transactions from properties which were sufficiently similar to the property being valued (the 'Subject Property')
All potentially material attributes can be considered. A non-exhaustive list might include:
(1) Property attributes such as:
(a) physical attributes - the size, layout, internal/external condition (old/run down vs new/modernised), orientation;
(b) legal rights - freehold/leasehold, length of leasehold, rights reserved and rights excluded, ancillary rights included, restrictions on free use of the land, burdens/benefits on the land;
(c) development potential - physically, legally (i.e. planning permission likelihood), time/resources required, and affect on value;
(d) location - proximity / accessibility to amenities / services, the types of amenities / services, and their utility/value;
(e) availability of legal possession - legal possession not immediately available (tenanted) or with immediate vacant possession.
(2) Sales transactions:
(a) genuine open market sales - arms length sales (rather than between, say, connected parties);
(b) Stage of sales - completed sales (rather than mere asking prices, or STC sales);
(c) time - relatively close in time to the valuation date for the Subject Property.
The aim is to find, across all these attributes, Comparables as close as possible to the Subject Property and valuation date. There are likely always to be differences. Very close matches are rare (and given land/property is unique, it can never, actually, be an exact match on all attributes - though it might be for all material attributes (immaterial differences can be ignored). Where there are differences, the materiality of the difference, will need to be:
(i) recognised, and significance identified; and
(ii) taken account of, in the analysis.
before firming up which are most useful in identifying a £m2 for the Subject Property. How the differences are taken account of, or 'bridged', can be a matter of analysis, based on evidence, professional judgment and/or common sense (to varying degrees).
With a view to making the analysis easier, the comparables preferrably will be tabulated, with each comparable having it relevant attributes listed, and a calculated £/m2.
After any further adjustments are made for identified differences between the comparables and the Subject Property, a £/m2 can then be fixed on for the Subject Property, and Subject Property value calculated (£/m2 x Subject Property actual size).
Further Adjustments
There are no hard and fast rules about adjustments. For instance, adjustments might be made to:
(a) £/m2, for a disparity in condition of the Subject Property, compared to a comparable (see Zabavnik, paragraph 41)
(b) £/m2, for the difference in availability of possession. The degree of security of tenure must be a factor here:
(i) Assured Shorthold Tenancies - in both Zabavnik and Akanwo, the same expert (Mr Newell) for HMRC, suggested a 5% allowance (reduction in value) where the subject properties were tenanted on Assured Shorthold Tenancies (note, the length of any fixed term left on the tenancies is unspecified in both cases). In both cases, the Judges held that such an allowance was 'appropriate' (Zabavnik, paragraph 40, and Akanwo paragraph 23).
(ii) Agricultural tenancies - in Gray, Hoffman LJ recorded that: (I) there was agreement between the parties that some subject land: (A) tenanted, was worth £2,751,000, whereas (B) with vacant possession, it was worth £6,125,000 (Gray, paragraph 12), and (II) HMRC had submitted, it seems, that 'Tenanted farming land is worth a good deal less than the same land with vacant possession' (Gray, paragraph 12). Readers should note that this is: (a) but one situation/submission, and should not be thought of as universal; (b) likely relates to an agricultural tenancy not governed by Agricultural Tenancies Act 1995; the details of the tenants rights are not reported with any particularity[3].
Procedure
Readers will want to read Part 8 of the 1984 Act, from s.221 to 244, for the procedure for resolving a dispute with HMRC about a subject property's s.160 valuation. But as an overview, the dispute resolution process might look like this:
(1) discussions between the PR and the VOA surveyor/valuer; then
(2) HMRC serving a Notice of Determination under s.221 of the 1984 Act[3a] , stating, amongst other things, (a) the value of any property; and (b) the tax chargeable (if any) and the persons who are liable for the whole or part of it. Section 221(5) provides (so far as presently material):
'Subject to any variation by agreement in writing or on appeal, a determination in a notice under this section shall be conclusive for the purposes of this Act against the person on whom the notice is served;...'
(3) the RP, on whom the Notice of Determination (under s.221 of the 1984 Act) was served, may, within thirty days of the service, appeal against any determination specified in the Notice of Determination, by notice in writing given to the Board (s.272(1) of the 1984 Act defines the 'Board' as 'the Commissioners of Inland Revenue'; see here);and specifying the grounds of appeal (section 222 of the 1984 Act[4]).
(4) there may be a statutory review by HMRC (under s.233A of the 1984 Act[5]);
(5) Sections 223D, 223G and 223H of the 1984 Act[6], provide for notification of the appeal to the tribunal, and an appeal on any question as to the value of land in the United Kingdom may be notified to the Upper Tribunal. Such an appeal may be notified to the High Court in certain circumstances (s.222(3) of the 1984 Act); though, a question as to the value of land in the United Kingdom shall be determined on a reference to the Upper Tribunal (which should be the Lands Chamber)
(6) The Upper Tribunal offers a simplified procedure available to be utilised, where costs are not normally awarded unless either party has behaved unreasonably, or the circumstances are in some other respect exceptional (Zabavnik, paragraph 43).
SIMON HILL © 2025
BARRISTER
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[1] Readers will recognise the wording of section 38 (of the Finance Act 1975)(now obsolete), had the same wording as now appears in section 160 of the Inheritance Act 1984 (save that 'capital transfer tax' appears in place of 'this Act').
[2] IRC v Gray [1994] STC 360, as Hoffman LJ stated, at paragraph 1, concerned:
'...the valuation of agricultural land for the purposes of what is now called inheritance tax but was at the material time called capital transfer tax on death.'
Later, Hoffman LJ said, at paragraph 3:
'The valuation of each item must be made in accordance with section 38, which says that “the value at any time of any property shall for the purposes of capital transfer tax be the price which the property might reasonably be expected to fetch if sold in the open market at that time."'
[2a] In IRC v Gray [1994] STC 360 ('Gray'), under the heading 'Splitting and Joining', Hoffman LJ considered the cases of: (a) Duke of Buccleuch v. Inland Revenue Commissioners [1967] 1 AC 606; and (b) Attorney-General of Ceylon v. Mackie [1952] 2 All ER 775, and concluded, at paragraph 11:
'...whether one is taking apart or putting together, the principle is that the vendor must be supposed to have “taken the course which would get the largest price for the combined holding”, subject to the caveat in Buccleuch that it does not entail “undue expenditure of time and effort."'
Later, Hoffman LJ said (section 38 of the Finance Act 1975 is the now obsolete predecessor to s.160 of the Inheritance Act 1984):
'Section 38 requires one to consider what a particular item of property would have fetched if sold on the open market. The Buccleuch principle may require one to suppose that it was sold alone, split into parts or together with something else.'
As to jurisdiction of the tribunal to determine the value of land and other forms of property (i.e. books, stock, goodwill etc), in the proposed aggregate, see Gray under subheading 'The Jurisdiction Point', from paragraph 25. In particular, Hoffman LJ said, at paragraph 29:
'In my judgment, therefore, jurisdiction was no objection to an aggregation required by the principle stated in Buccleuch.'
[2b] In IRC v Gray [1994] STC 360, at paragraph 35, Hoffman LJ quoted part of the first instance Tribunal's judgment. This included a part which Hoffman LJ did not criticise, namely:
'Whilst the general basis of value to be adopted is prescribed by statute as open market value there is no prescription of the method of valuation to be applied'
In Valuation: Principles into Practice (6th Ed) (Edited by Richard Hayward)(2008), Charles Cowap MBA, MRICS, FAAV, MRAC, DipREM (Gold Medal), FHEA Principal Lecturer in Land Management and Director of Work Based Learning, Harper Adams University College, Shropshire states, in a chapter on agricultural land, but, in the author's view, of wider application (page 2):
'Like any other valuer, the agricultural valuer needs to be familiar with the five traditional methods of valuation. Although direct comparison is the mainstay of the rural valuer’s work, different rural assets may need the investment, residual, profits or depreciated replacement cost methods.'
and later,
'As always, comparable transactions of which the valuer has direct knowledge and which relate closely to the subject property in location, character, tenure and valuation date are the best guide.' (page 6)
[3] As to agricultural tenancies generally, see:
(a) Agricultural Holdings Act 1986 - generally, tenancies of agricultural land, demised prior to 1.9.95, will be governed by the Agricultural Holdings Act 1986;
(b) Agricultural Tenancies Act 1995 - in effect from 1.9.95; more landlord friendly;
(c) Inheritance Act 1984, Part 5 entitled 'Miscellaneous Reliefs', Chapter 2, entitled 'Agricultural Property', sections 115 to 124C.
In particular, section 116, entitled 'The relief' - contains the core provision for Agricultural property relief.
(d) Willett v CIR Lands Tribunal [1982] 264 EG 257;
(e) Baird’s Exors v Commissioners of Inland Revenue [1991] 1 EGLR 201; [1991] 09 EG 129 & 10 EG 153;
(f) Lloyds TSB Private Banking (personal representative of Rosemary Antrobus deceased) v Peter Twiddy DET/47/2004;
(g) Walton (Executor of Walton deceased) v CIR [1996] STC 68.
[3a] Section 221 of the Inheritance Act 1984 is entitled 'Notices of determination' reads:
'(1) Where it appears to the Board that a transfer of value has been made or where a claim under this Act is made to the Board in connection with a transfer of value, the Board may give notice in writing to any person who appears to the Board to be the transferor or the claimant or to be liable for any of the tax chargeable on the value transferred, stating that they have determined the matters specified in the notice.
(2) The matters that may be specified in a notice under this section in relation to any transfer of value are all or any of the following-
(a) the date of the transfer;
(b) the value transferred and the value of any property to which the value transferred is wholly or partly attributable;
(c) the transferor;
(d) the tax chargeable (if any) and the persons who are liable for the whole or part of it;
(e) the amount of any payment made in excess of the tax for which a person is liable and the date from which and the rate at which tax or any repayment of tax overpaid carries interest; and
(f) any other matter that appears to the Board to be relevant for the purposes of this Act.
(3) A determination for the purposes of a notice under this section of any fact relating to a transfer of value -
(a) shall, if that fact has been stated in an account or return under this Part of this Act and the Board are satisfied that the account or return is correct, be made by the Board in accordance with that account or return, but
(b) may, in any other case, be made by the Board to the best of their judgment.
(4) A notice under this section shall state the time within which and the manner in which an appeal against any determination in it may be made.
(5) Subject to any variation by agreement in writing or on appeal, a determination in a notice under this section shall be conclusive for the purposes of this Act against the person on whom the notice is served; and if the notice is served on the transferor and specifies a determination of the value transferred by the transfer of value or previous transfers of value, the determination, so far as relevant to the tax chargeable in respect of later transfers of value (whether or not made by the transferor) shall be conclusive also against any other person, subject however to any adjustment under section 240 or 241 below.
(6) References in this section to transfers of value or to the values transferred by them shall be construed as including references to -
(a) chargeable events by reference to which tax is chargeable under section 32 or 32A of this Act,
(b) occasions on which tax is chargeable under Chapter III of Part III of this Act,
(c) disposals on which tax is chargeable under section 126 of this Act,
or to the amounts on which tax is then chargeable.'
[4] Section 222 of the Inheritance Act 1984 is entitled 'Appeals against determinations' reads:
'(1) A person on whom a notice under section 221 above has been served may, within thirty days of the service, appeal against any determination specified in it by notice in writing given to the Board and specifying the grounds of appeal.
(2) Sections 223D, 223G and 223H provide for notification of the appeal to the tribunal.
(3) Where-
(a) it is so agreed between the appellant and the Board, or
(b) the High Court, on an application made by the appellant, is satisfied that the matters to be decided on the appeal are likely to be substantially confined to questions of law and gives leave for that purpose,
the appeal may be notified to the High Court.
(4) An appeal on any question as to the value of land in the United Kingdom may be notified to the appropriate tribunal.
(4ZA) The appeal may be notified under subsection (3) or (4) only if it could be notified to the tribunal under section 223D, 223G or 223H.
(4A) If and so far as the question in dispute on any appeal under this section which has been notified to the tribunal or the High Court is a question as to the value of land in the United Kingdom, the question shall be determined on a reference to the appropriate tribunal.
(4B) In this section 'the appropriate tribunal' means -
(a) where the land is in England or Wales, the Upper Tribunal;
(b) where the land is in Scotland...
(c) where the land is in Northern Ireland...
(5) In the application of this section to Scotland...'
[5] Section 223A of the Inheritance Act 1984 is entitled 'Appeal: HMRC review or determination by tribunal' reads:
'(1) This section applies if notice of appeal has been given to HMRC.
(2) In such a case -
(a) the appellant may notify HMRC that the appellant requires HMRC to review the matter in question (see section 223B),
(b) HMRC may notify the appellant of an offer to review the matter in question (see section 223C), or
(c) the appellant may notify the appeal to the tribunal (see section 223D).
(3) See sections 223G and 223H for provision about notifying appeals to the tribunal after a review has been required by the appellant or offered by HMRC.'
[6] Section 223D of the Inheritance Act 1984 is entitled 'Notifying appeal to the tribunal' reads:
'(1) This section applies if notice of appeal has been given to HMRC.
(2) The appellant may notify the appeal to the tribunal.
(3) If the appellant notifies the appeal to the tribunal, the tribunal is to decide the matter in question.
(4) Subsections (2) and (3) do not apply in a case where -
(a) HMRC have given a notification of their view of the matter in question under section 223B, or
(b) HMRC have given a notification under section 223C in relation to the matter in question.
(5) In a case falling within subsection (4)(a) or (b), the appellant may notify the appeal to the tribunal, but only if permitted to do so by section 223G or 223H.'
Section 223G of the Inheritance Act 1984 is entitled 'Notifying appeal to tribunal after review concluded' reads:
'(1) This section applies if-
(a) HMRC have given notice of the conclusions of a review in accordance with section 223E, or
(b) the period specified in section 223E(6) has ended and HMRC have not given notice of the conclusions of the review.
(2) The appellant may notify the appeal to the tribunal within the post-review period.
(3) If the post-review period has ended, the appellant may notify the appeal to the tribunal only if the tribunal gives permission.
(4) If the appellant notifies the appeal to the tribunal, the tribunal is to determine the matter in question.
(5) The appellant may not notify the appeal to the tribunal under this section if the appeal has been notified to the court under section 222(3) or the appropriate Lands tribunal under section 222(4).
(6) In this section “post-review period” means-
(a) in a case falling within subsection (1)(a), the period of 30 days beginning with the date of the document in which HMRC give notice of the conclusions of the review in accordance with section 223E(6), or
(b) in a case falling within subsection (1)(b), the period that-
(i) begins with the day following the last day of the period specified in section 223E(6), and
(ii) ends 30 days after the date of the document in which HMRC give notice of the conclusion of the review in accordance with section 223E(9).'
Section 223H of the Inheritance Act 1984 is entitled 'Notifying appeal to tribunal after review offered but not accepted' reads:
'(1) This section applies if-
(a) HMRC have offered to review the matter in question (see section 223C), and
(b) the appellant has not accepted the offer.
(2) The appellant may notify the appeal to the tribunal within the acceptance period.
(3) But if the acceptance period has ended, the appellant may notify the appeal to the tribunal only if the tribunal gives permission.
(4) If the appellant notifies the appeal to the tribunal, the tribunal is to determine the matter in question.
(5) The appellant may not notify the appeal to the tribunal under this section if the appeal has been notified to the court under section 222(3) or the appropriate Lands tribunal under section 222(4).
(6) In this section “acceptance period” has the same meaning as in section 223C.'