The Estate of Douglas Charles Thomas v HMRC

For inheritance-tax purposes, the best consideration reasonably obtainable on a sale of land under Inheritance Tax Act 1984, section 190(1), is assessed by determining the price the land would have achieved if openly exposed to the market at the sale date.

Comparable transactions may provide a more reliable valuation basis than a residual valuation where the residual inputs depend on numerous untested assumptions. Small changes to costs, contingencies, profit or development assumptions may produce materially different land values. The tribunal must weigh the quality, location, timing, planning position and physical characteristics of the comparables, rather than adopt a mechanical price-per-acre figure.

The deceased’s estate sold 8.08 acres of agricultural land at Pontyates, allocated for residential development, off market in April 2012 to a company owned by the deceased’s daughter and son-in-law for £500,000.

HMRC determined that the price was below the best consideration reasonably obtainable under section 190(1) of the Inheritance Tax Act 1984 and assessed that consideration at £800,000. The personal representatives appealed under section 222.

Each party relied on expert valuation evidence using comparable transactions and residual valuations. The central issue was the market value that the land would have achieved had it been openly marketed at the date of sale.

1. The appeal was allowed in part. The best consideration reasonably obtainable for the land on 5 April 2012 was £645,000, rather than the actual sale price of £500,000 or HMRC’s valuation of £800,000.

2. Section 190(1) of the Inheritance Tax Act 1984 required the Tribunal to determine the price that would have been achieved if the land had been openly exposed to the market. The parties accepted that, for this appeal, best consideration was equivalent to market value as defined by section 160.

3. The Tribunal gave very little weight to the residual valuations. Both depended on basic and insufficiently researched assumptions. The residual method involved numerous variable inputs, including build costs, contingencies, professional fees, planning obligations and developer profit. The materially divergent results produced by plausible assumptions showed that neither residual valuation was a reliable basis for the assessment.

4. The Tribunal instead preferred the comparable method. It rejected or gave little weight to transactions that were inadequately evidenced, too remote in time, affected by restricted marketing, or concerned materially superior locations. The Gorslas and Cefneithin sites provided the most useful comparisons, although both were in better locations than the appeal land.

5. Planning permission for 100 dwellings would probably have been granted at the valuation date, subject to section 106 terms. Having considered the land’s regular shape, slope, location and the comparable evidence, the Tribunal adopted £80,000 per gross acre. Applied to 8.08 acres, that produced £646,400, rounded to £645,000. No order for costs was made under the simplified procedure.

• Upper Tribunal (Lands Chamber): Allowed the estate’s appeal in part from HMRC’s determination and determined the best consideration at £645,000.