Inland Revenue v Arkwright & Anor

The applicability of related-property provisions is a question of statutory construction that may be decided by the Special Commissioners. Where those provisions do not prescribe a mathematical valuation, the actual open-market value of interests in land is a valuation issue for the Lands Tribunal. The Special Commissioners must not determine that value or decide, without appropriate valuation evidence, which factors affect it. This includes the effect of occupation rights under the Trusts of Land and Appointment of Trustees Act 1996 and any reduction said to arise from the deceased’s imminent or actual death.

The Revenue appealed under section 225 of the Inheritance Tax Act 1984 against preliminary decisions of the Special Commissioner concerning the inheritance-tax valuation of a deceased’s undivided half share in a property held as tenants in common with his wife.

The Special Commissioner held that the appeal was within her jurisdiction, that section 161(4) did not require the share to be valued at exactly one-half of the vacant-possession value, and that the share was in fact worth less than one-half. The issues before the High Court were whether the appeal should have been struck out and whether the Special Commissioner was entitled to determine the valuation and the factors affecting it.

1. Appeal allowed in part. The Revenue properly conceded that the Special Commissioner had jurisdiction to decide whether section 161(4) of the Inheritance Tax Act 1984 applied. That was a question of law concerning the construction and effect of the statutory related-property provisions. The appeal therefore should not have been struck out.
2. Section 161(4) did not apply. Consequently, the deceased’s half share was not inevitably to be valued at a mathematical one-half of the vacant-possession value. The Special Commissioner was entitled to determine that discrete legal issue.
3. It was not, however, for the Special Commissioner to determine as a matter of fact that the deceased’s interest was worth less than one-half of the vacant-possession value. That was an issue of open-market valuation for the Lands Tribunal.
4. Whether a notional purchaser would take account of the surviving spouse’s occupation rights under the Trusts of Land and Appointment of Trustees Act 1996, and what effect those rights would have on value, required determination by the Lands Tribunal on appropriate evidence.
5. Section 171 did not exclude consideration of the deceased’s death because the interest neither terminated on death nor passed by survivorship. Nevertheless, whether the imminence or fact of death reduced the value of the interest was itself a valuation question for the Lands Tribunal. It was immaterial whether any reduction was treated as occurring before death or by reason of death.
6. The Special Commissioner’s summary of the related-property provisions in section 161 gave rise to no separate issue. The matter was remitted, absent agreement, to the Lands Tribunal to determine the open-market value of the two shares. The Tribunal was not bound by the Special Commissioner’s views on value or valuation factors. Costs were reserved for argument.

1. Special Commissioner: Preliminary legal and valuation decisions were given on 11 December 2003.
2. High Court (Chancery Division): The Revenue’s appeal was allowed to the limited extent that the valuation issues were remitted to the Lands Tribunal.