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The recent publicity surrounding Antrobus 2 (Lloyds TSB Private Banking (Personal Representative of Rosemary Antrobus Dec’d) v CIR DET/47/2004) has highlighted the need for accurate valuations and the importance of the role of the professional valuer, the District Valuer and the Lands Tribunal.

It has been said that tax planning is based on fact and the interpretation of statute and that variations in property values should not impact upon the tax advice that is provided by the tax planner. So does size matter to the tax planner? Does the approach of the tax planner vary with different values?

Probate and Agricultural Value

Clearly one obvious example of the importance of accurate property values is that of the probate value of the farmhouse with regard to both market value and agricultural value. The latter is the value of the asset used in the trade of farming as if the asset is subject to a perpetual covenant prohibiting its use otherwise than as agricultural property (IHTA 1984 s.115(3)).

The emphasis of the use of ‘agricultural value’ in the tax press has been heavily focused on the farmhouse but the agricultural value is also of prime importance with regard to farmland and the difference between farm and potential “development” values. It can be argued that all land has some “hope value”, i.e. some hope of future development.

Development Value

“Development” is not defined by statute. HMRC’s interpretation is ‘any physical adaptation or preparation for new use of land’. Development value is the increase in value created by planning consent or the anticipation of planning consent. This difference in value is of particular importance for Inheritance Tax (IHT) whether as a probate value or as a lifetime transfer. The agricultural value should attract Agricultural Property Relief (APR) and the difference with market value (hope value) should achieve Business Property Relief (BPR) under s.110 IHTA 1984:

- The value of the business or of an interest in a business shall be taken to be its net value;

- The net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business;

- In ascertaining the net value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the entire business would fall to be ascertained.

To achieve BPR under s.110 the land with development potential must be held in exactly the same way as land which does not attract such hope value. Evidence of the development land being used in the farming business in the same way as the other farmland would be imperative and must be retained.

As agricultural values have remained fairly static over the last 20 years or so, and yet general property prices have leapt, the correct valuation of hope or development value either before death to facilitate tax planning or for probate purposes is going to be of vast importance to the tax planner. What would happen if the calculation hope value quantum is wrong by, say, several £millions? Does size matter?

Capital Gains Tax Implications

The probate value will be the future base cost for Capital Gains Tax (CGT). Clearly where large development values are involved, if full BPR can be achieved on the hope value then the IHT liability will be lower and the future CGT liability will be reduced due to a higher base cost.

With Business Asset Taper Relief (BATR) potentially at 75% on future disposals then future CGT liabilities will only be at a net rate of 10% (40% top rate of tax less 75% BATR). Is there a great temptation for a land agent to try and increase the probate value confident in the security of BPR under s.110?

There are two questions that must be asked here. Firstly, how certain is it that BPR will be achieved? Secondly, what codes are the valuers bound by to try and help the taxpayer and the tax planner ensure total independence at all times?

The apportionment of the total value between the element that achieves, say, full BATR and the element that does not is critical to the tax planner (see below).

The Red Book Value

As from August 2002, all tax property valuations that are used for all Tax Returns should be conducted within the standards governed by the Red Book (The RICS valuation bible). Professional standards require comprehensive and thorough reports. The Red Book directs both the taxpayer’s valuer and the District Valuer’s office. The expectations should be that they are all performing to the same professional standards. Both have to apply themselves to the same definitions of market value. The probate valuation represents a document upon which the Executor bases their IHT Returns dealing with market value and the quantum of agricultural value. The Executors and tax advisers rely heavily upon the quality of the opinions and the accuracy of such valuations contained within probate valuation reports. The drafting of the probate valuation should be seen as an opportunity to give clear and independent advice to a client as to the issue of agricultural property relief. The probate valuation should be prepared with a great deal of precision and research and should clearly set out the taxpayer’s position so that the Executors can truly rely on it in terms of potential tax liabilities that may or may not be payable.

A well prepared report is going to be far better received by the Capital Taxes Office (CTO)/District Valuer (DV) than a report that lacks this professional duty of care, and they are more likely to be persuaded of the taxpayer’s position by the application of such professional excellence.

The DV’s office is broadly exempt from Red Book compliance due to the internal nature of their practice. However, there is no visible difference between chartered surveyors who act in private practice and those working within DV’s offices in so much that they will both be bound by the technical definitions found within statute and the Red Book.

If cases become contentious, requiring the need for the submission of expert witness type reports, then both types of valuer will be bound by the Civil Procedure Rules that have helpfully been set out in the RICS practice statement of ‘Chartered Surveyors Acting as Expert Witnesses’.

The Benefit of Research and Experience

A valuation, especially when dealing with complicated references, tends to be down to thorough research. This suggests that only valuers with the relevant degree of experience in valuing certain property should attempt to provide probate valuations and/or expert reports and such valuers must have a detailed understanding of the complicated areas of case law that have evolved in recent years. This will require a valuer to work closely with the taxpayer’s adviser.

Future Litigation

With the potential for future litigation, the professional standards of valuers working in conjunction with their client’s legal advisers and tax advisers are essential. Valuers will need to be independent and capable of providing documentation to support their valuations.

Are valuers prepared to give evidence of valuation and for that evidence to be tested before the Special Tax Commissioners or the Lands Tribunal?

The Lands Tribunal

This is the procedure with regard to the unagreed land valuation. The Lands Tribunal applies to valuations on lifetime sales, lifetime transfers and probate.

To quote Inspectors Manual CG74502:

‘The Lands Tribunal is a Court equivalent in status to the High Court and with the power to award costs, which may be substantial. If a reference to the Lands Tribunal is necessary we are represented by the Board’s Solicitor.’

The Apportionment Value

Obviously where property will be subject to varying reliefs for either CGT or IHT, the apportionment of total value between individual values will impact upon the calculation of current tax liabilities and future tax liabilities.


‘Following the introduction of Self-Assessment TMA70/S46D extends the jurisdiction of the Lands Tribunal to:

- Amendments to self-assessment.

- Amendments to a partnership statement.’


‘If agreement cannot be reached about an apportionment of any consideration between different assets that include land it may be necessary to refer the dispute to the Lands Tribunal.

TCGA92/S52(4) requires that any necessary apportionment is to be ‘just and reasonable’. Where land is involved any judgement about what is just and reasonable must take into consideration the value of that land, therefore the Land Tribunal has authority to consider any land valuations within its jurisdiction needed to come to a judgement about an apportionment. You should follow the instructions at CG74500.’

Tax Planning Values

For those tax planners who are about to undertake predictions as to future capital gains tax and/or Inheritance Tax audits for their living clients the accuracy of the valuation is of prime importance and size does matter with regard to assessing the mitigation and prediction of future IHT liabilities.

The quality of property valuations for tax planning purposes is as important as the probate value. Is the client willing to go to the cost of a Red Book valuation? Has the tax planner carried out the full risk assessment of the valuation being wrong? Is the tax planner happy to work with a value that is not “red book”?

(HMRC manuals CG74502, CG74503, CG74160, CG7450, CG14771 and CG74500 can be obtained from, 0845 9000 404.

About the Author

Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West Street, Alresford, Hampshire, SO24 9AT. Tel: 01962 735544. Email;

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification ISBN: 0754517691 (1st edition) and ISBN: 0754522180 (2nd edition) and Equine Tax Planning ISBN: 0406966540. To order a copy call Tottel Publishing on 01444 416119.

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Article Published/Sorted/Amended on Scopulus 2006-07-31 23:10:03 in Tax Articles

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