In Foster v R&C Commrs UKUT0251 (LC) the Upper Tribunal Lands Chamber partly allowed an appeal against a valuation for IHT purposes of land with development potential; HMRC’s approach was correct but the resulting value was too high.

Section 160 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. This can include an element of "hope" value.

Simon Foster, was the executor of the estate of Susan Elizabeth Foster who died in August 2013. Her estate included 6.39 acres of unregistered freehold agricultural (pasture) land, (the Site).

  • In 2010 the deceased entered into a second 6 year JV with a construction company to promote the Site for development including obtaining planning permission.
  • The land was outside the local plan and “safeguarded” until after 2026 but applications were submitted, and permission was granted to nearby “safeguarded” land outside the local plan.
  • The Site was effectively landlocked; there was no evidence that satisfactory vehicular access could be provided.
  • Mr Foster and HMRC were in dispute about the market value of the Site for IHT purposes.
    • Mr Foster, who had taken independent valuation advice, valued it at £191,700.
    • HMRC, via the Valuation Office Agency, valued it at £850,000.

The tribunal identified two issues concerning the assessment of the open market value of the Site:

  • Its residential development potential at the valuation date; and
  • The correct valuation approach.

The tribunal was satisfied that at the valuation date a hypothetical purchaser would have considered there to be a reasonable prospect of obtaining planning permission for the residential development of the Site in the short term.

As a result, they agreed with HMRC’s “top down” valuation approach but took a different approach to risk and the size of the potential development.

  • HMRC assumed residential planning permission for 50 dwellings, the tribunal 45 dwellings.
  • HMRC’s undiscounted value for the Site, assuming it had planning permission was £2,843,550, the tribunal assessed this at £2,438,000.
  • HMRC made deductions for access risk at 40% and planning risk and deferment at 50%, giving an effective overall discount of 70%. The tribunal used an effective discount rate of 80%. This gave a value of £590,000.

Links to our guides:

IHT: development land 

IHT Agricultural Property Relief

IHT Business Property Relief (subscriber guide)

External Link:

Foster v R&C Commrs UKUT0251 LC