Valuation for probate – Chadwick v HMRC [2010] UKUT 82 (Lands Chamber)

 In Probate

Disclaimer: LawSkills provides training for the legal industry and does not provide legal advice to members of the public. For help or guidance please seek the services of a qualified practitioner.

The valuation of real property for probate purposes has been under the spot light for some time. Practitioners are rightly concerned to do what is necessary to obtain an open market value of a property in an estate in accordance with s.160 IHTA 1984. However, the stance taken by HMRC over the question of valuation is causing a good many practitioners to question the number and type of valuations required to satisfy HMRC and demonstrate the correct value has been chosen for Inheritance Tax purposes.

The recent tribunal hearing in the estate of Raymond Francis Hewitt Hobart deceased is a welcome win for the taxpayer:

The facts

The deceased purchased The Smokery House in October 2002 for £268,450. He had decided in by early 2001 that he could no longer look after himself and he needed to move from his detached house to sheltered or assisted accommodation. He could not find what he wanted so he bought The Smokery House because it was a matter of yards from his daughter’s home at Yew Tree House. The Smokery House was never offered for sale on the open market; the owners simply quoted a price to Mr Hobart who agreed to pay it subject to a small reduction to reflect that no estate agent’s commission would arise.

The LawSkills Monthly Digest

Subscribe to our comprehensive Monthly Digest for insightful feedback on Wills, Probate, Trusts, Tax and Elderly & Vulnerable client matters

Not complicated to read  |  Requires no internet searching |  Simply an informative pdf emailed to your inbox including practice points & tips

Subscribe now for monthly insightful feedback on key issues.

All for only £120 + VAT per year
(£97.50 for 10+)

Lawskills Digest

This was significant because this meant that the price paid did not conform to the definition of market value in s.160 IHTA 1984 – namely, the price which the property might reasonably have expected to fetch if sold on the open market. It instead represented the price which a special and anxious purchaser would pay for it.

Following Mr Hobart’s death two firms of estate agents were instructed to value the property for probate purposes. Neither of them was told about the other’s involvement and neither had been told the purchase price for the property. Interestingly, both agents produced the same figure by way of valuation at the date of death – £250,000. This was based on their specialist knowledge of the local property market.

Copies of the two valuations were submitted to HMRC in June 2006. The District Valuer inspected the property in March 2007 by which time certain refurbishments have been completed. He advised in April that he intended to report the probate value as £350,000. The solicitors acting in the estate requested the evidence on which he had based this valuation and gave the details of prices of seven other houses in the locality and the fact that Mr Hobart had paid £268,450 for it in 2002.

The executors provided the DV with the evidence from the reports they had instigated and a detailed explanation as to why the purchase price was not an appropriate starting point for coming to decide the probate value in this case. The DV did then reconsider and suggested he was prepared to compromise at £275,000. This was not agreed by the executors and it was up to the Tribunal to decide.

The outcome

Mr Rose FRICS heard the appeal and visited the property. He was not happy that neither of the executors’ experts appeared before him and could not therefore be cross-examined. He was however, also of the opinion that it was wrong to rely on the 2002 purchase price as a starting point since it was not compliant with s.160 IHTA 1984.

Instead, the choice of comparable property was the most reliable assistance and he chose to visit the three comparables included in the DV’s report. He disagreed with the DV’s comments and adjusted the properties sale prices to coincide with the characteristics of the property in the estate. Having made the adjustments he concluded that the value of the property at Mr Hobart’s death was indeed £250,000.

Practice points

Practitioners should rightly take care in instructing agents.

  • In this case the independent nature of the reports received by the executors was because neither party knew of the other’s involvement.
  • When choosing which agents to instruct, particularly in a border line or taxable estate, choose someone who is able and willing to negotiate with the DV and who would be able to represent the estate at a Tribunal if necessary.
  • Special prices paid are not a starting point if not compliant with s.160 IHTA 1984 but note that recent purchase prices which were compliant with s.160 might well be and the valuers chosen to act should be told of that price.
  • Obtaining more than one valuation is not necessarily necessary despite what HMRC are reported as saying in the IHT & Trusts Newsletter. However, where there is an unusual property to value, such as here, then it does make sense to consider instructing more than one valuer or taking up other ideas for valuation such as comparables off internet web sites.

© Gill Steel, LawSkills Ltd

FREE monthly newsletter

Wills | Probate | Trusts | Tax  | Elderly & Vulnerable Client

  • Relevant learning and development opportunities
  • News, articles and LawSkills’ services
  • Communications which help you find appropriate training in your area
Recent Posts