In Palliser v HMRC [2018] UKUT 0071 (LC) a Lands Chamber case, the Upper Tribunal found that a property in need of modernisation but with great potential should have been valued for IHT purposes with hope value included.

Section 160 Inheritance Tax Act 1984 (IHTA 1984) defines market value for IHT purposes as the price which the property might reasonably be expected to fetch if sold in the open market at the time of valuation.

In 2012 Mr Palliser inherited an 88.4% share in a maisonette from his father. The property was dated and unmodernised and required major refurbishment at the valuation date.

  • It was valued by a chartered surveyor in August 2012 at £1.4m giving Mr Palliser an interest of £1.237m. No hope value was included as the RICS red book did not mention it, but a long list of issues that negatively impacted the value was included.
  • In March 2014 the property was sold for £2.525m.
  • In December 2016 a Notice of Determination was served by HMRC under section 221 of IHTA 1984 under which the deceased’s freehold interest was valued at £1,829,880.
  • Mr Palliser appealed the decision to the First Tier Tribunal saying that the correct valuation was £1,113,840. The appeal was referred to the Upper Tribunal (UT) to determine the valuation dispute.

The Upper Tribunal, in dismissing the appeal and criticising the surveyor's negative approach to the valuation, said that as the property was being sold with the potential for improvement then if the market is prepared to pay a price that includes the prospect of an enlarged floor space then that must be taken into account in the valuation. To the extent that the potential has not been crystallised by planning permission, its value will be hope value rather than development value. Either way, it is not an element of value to be ignored under section 160 IHTA.

However, the tribunal did not agree with HMRC’s proposed value for Mr Palliser's 88.4% and reduced it to £1,603,930 after a 10% reduction for the undivided share.


It is possible given the surveyors ‘holistic’ valuation approach that this will prove to be a decision based on the facts, however, the tribunals reasoning does seem to take the concept of hope value a step further in applying the principle simply because a property has ‘potential’ for improvement, regardless of the possibility of such works being either financially viable or approved by the planning authorities.

Both this and another recent Lands Chamber case Mrs Dorcas Adebowale Akanwo (as Personal Representative for the estate of Miss Taiwo Akanwo Deceased) v HMRC [2018] UKUT 0113 (LC) are a reminder that any valuation used must be able to stand up to scrutiny by the District Valuer.

Useful guides on this topic

IHT: Development land
When is the development of land a business for the purposes of Business Property Relief (BPR)?

Valuation: Companies 
When might a tax valuation be required? What are the main principles in valuing unquoted companies?

External link

Palliser v HMRC [2018] UKUT 0071 (LC) 

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