UPPER TRIBUNAL (LANDS CHAMBER)	
	
UT Neutral citation number: [2010] UKUT 82 (LC)
LT Case Number: TMA/187/2009

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
	
TAX – inheritance tax – house – value – comparables – appeal upheld – HMRC’s valuation of £275,000 reduced to £250,000
	
	IN THE MATTER OF AN APPEAL AGAINST A NOTICE OF DETERMINATION 
	OF VALUE UNDER SECTION 221, INHERITANCE ACT 1984

BETWEEN	(1) LINDA FRANCES CHADWICK
	(2) MALCOLM CLIVE HOBART
	(as Executors of the Will of 
	Raymond Francis Hewitt Hobart, deceased)	Appellants
	and
	THE COMMISSIONERS OF HER
	MAJESTY’S REVENUE AND CUSTOMS	Respondent

	Re:	The Smokery House
	Mill Lane
	Broom
	Alcester
	Warwickshire
	B50 4HR

	Before: N J Rose FRICS

	Sitting at Birmingham Civil Justice Centre, Priory Courts, 
	33 Bull Street, Birmingham, B4 6DS
	on 26 February 2010

Mr Peter Chadwick, with permission of the Tribunal, for the Appellants
Mr Colin Ryder, assistant director, HMRC Inheritance Tax Appeals Team, for the Respondent

The following case was referred to in argument:

HMRC v Bower [2008] EWHC 3105 (Ch)

	DECISION
Introduction
1.	This is an appeal against the determination by the Commissioners of HM Revenue and Customs, under section 221 of the Inheritance Tax 1984 (the 1984 Act), that the value of the freehold interest held by Mr Raymond Francis Hewitt Hobart deceased in a house known as The Smokery House, Mill Lane, Broom, Alcester, Warwickshire, B50 4HR on 21 December 2005, the date of death, was £275,000.  The appellants are Mrs Linda Frances Chadwick and Mr Malcolm Clive Hobart, the executors of Mr Raymond Hobart’s will.  They contend that the value was £250,000.
2.	The appeal was conducted in accordance with the Tribunal’s simplified procedure.  Mr Peter Chadwick appeared for the appellants with leave of the Tribunal.  Mr Colin Ryder, assistant director of inheritance tax appeals, HMRC appeared for the respondent.  Mr Ryder called expert evidence from Mr Alistair Graham MRICS, a senior surveyor in the Coventry office of District Valuer Services.  I inspected the appeal property and certain comparable properties, in company with representatives of the parties, on the morning of 12 March 2010.
Facts
3.	From the evidence and my inspection I find the following facts.  The village of Broom lies approximately one mile north of Bidford-on-Avon, four miles south of Alcester and eight miles west of Stratford-upon-Avon.  The appeal property lies to the north of Yew Tree House, a grade II listed building fronting the north side of Mill Lane.  It is accessed via the service road immediately to the west of Yew Tree House, which also serves a house known as The Brew House.  The appeal property is situated in a conservation area and is curtilage listed in relation to Yew Tree House.
4.	In the late 1980s Yew Tree House and its adjoining land was sold for redevelopment.  The site included a dilapidated building, close to the main house, which was originally used for drying hops and brewing beer.  The smaller section – The Smokery – was mainly brick built.  The Brew House, which was approximately 50% larger, was mainly timber framed with brick infill.  Most of the smokery section was rebuilt, the main exception being the smokery vault and the surrounding stone walls which occupy about one-third of the ground floor area.  This section is accessed externally and is only suitable for storage use.  The walls above the smokery were reconstructed using the original bricks.  The remainder of the property was newly built with modern materials.  The only other part of the original structure which remains is the part timber framed stud wall in the main bedroom adjoining The Brew House. 
5.	The appeal property is now a semi-detached house with shared access, comprising an entrance hall, cloakroom, sitting room, kitchen and smokery on the ground floor, together with a small conservatory at the front, and a master bedroom with en suite shower room, two further bedrooms and a bathroom/wc on the first floor.  Views over open countryside may be obtained from the rear rooms at first floor level.  To the front of the property is a paved driveway and a double brick-built garage.  There is a good size garden to the rear with a patio.  The property has a gas fired radiator central heating system and is double glazed.  The reduced covered area (RCA) is approximately 142m2, comprising 116m2 main space, 5m2 conservatory and 21m2 smokery.  Subsequent to the valuation date the property has been upgraded and redecorated and is now used as a 4* self-catering holiday home.
6.	Shortly after Mr Hobart’s death, the appellants instructed two firms of estate agents in Bidford-on-Avon to value the freehold interest in the appeal property for probate purposes.  Neither was informed that two valuations were being obtained.  Mr Alan Ball, principal of Alan Ball and Co, reported on 31 December 2005 and Mr Peter Dickenson MRICS, FNAEA, a director of the eponynous firm, reported on 10 January 2006.  Both estimated the freehold value at £250,000.
7.	Copies of the two valuation reports were submitted to HMRC in June 2006.  Mr Graham inspected the property in March 2007, by which time the refurbishment works had been completed.  On 3 April 2007, in a letter to the appellants’ solicitors, Messrs Brownings, Mr Graham said that he proposed to report a value of £350,000.  He asked the appellants to give him any information which they wished him to consider if they did not agree with the proposed valuation.  Following a request for the evidence he had used to arrive at his suggested value, Mr Graham wrote to Brownings on 8 June 2007, with details of the prices paid for seven houses in Broom, including the appeal property itself, which had been purchased by the late Mr Hobart for £268,450 in October 2002. 
8.	On 23 August 2007 the appellants sent Mr Graham a detailed report in support of the original valuation of £250,000.  This included information on sale prices and asking prices of other houses which had been provided by Mr Dickenson and Mr Ball.  It also provided a detailed explanation of the background to Mr Hobart’s purchase of the property in 2002, and why the appellants considered that the price paid did not reflect the property’s then open market value. 
9.	Following a meeting with Mr Chadwick on 22 January 2008, Mr Graham reconsidered his valuation in the light of all the information that had been provided by the appellants.  He wrote to Browings on 15 February 2008, saying that he was prepared to compromise at £275,000, but that figure was not acceptable to the appellants.
The appellants’ case
10.	Mr Chadwick attached considerable significance to the fact that two valuers, with specialist knowledge of the local property market, had attributed an identical value to the appeal property, having inspected it very shortly after the valuation date and without knowing of the other’s involvement, or the price that had been paid for the property in 2002.  He submitted that, in refusing to reduce his valuation below £275,000, Mr Graham had placed undue reliance on the 2002 purchase price.
11.	In his statement of case on behalf of the appellants, Mr Chadwick relied on the prices being quoted in 2007 for seven houses in Bidford, Broom, Lower Quinton and Cleeve Prior.  He increased Mr Graham’s valuation of £275,000 by 10% per annum to reflect house price inflation since the valuation date and arrived at an equivalent value in 2007 of £320,000.  He suggested that it would have been necessary to quote £329,950 in order to achieve that figure and he submitted that an asking price at that level was “well beyond” the prices being quoted elsewhere.  If, on the other hand, the appellants’ valuation of £250,000 was similarly adjusted for inflation, it would produce a value of £290,000 and an asking price of £299,950, which was “far more in keeping with market expectations”.
12.	Mr Chadwick also placed weight on the price of £375,000 which was paid in October 2002 for The Arrows, a neighbouring grade II listed property.  The Arrows was subsequently let unfurnished at a rent of £1,750 per calendar month.  Following Mr Hobart’s death, enquiries were made and a maximum rent of £1,000 per month was suggested for the appeal property.  If the sale price of The Arrows were adjusted in proportion to the respective rental values of the two properties, a value of £215,000 would be produced for the appeal property.  Mr Chadwick increased this value by 5% per annum to reflect house price inflation and arrived at a value for the appeal property, at the valuation date, of £250,857.  As a check, he referred to two properties in Broom which were sold twice in the relevant period and which showed increases of 5.6% and 6.4% per annum respectively.  If the average inflation rate for these two properties were used to adjust the figure of £250,857, it would produce a value for the appeal property at the valuation date of £258,484.  Mr Chadwick submitted that, at this level, the price achieved would be adversely affected by the fact that the rate of stamp duty increased on sales above £250,000.  Moreover, the fact that the property was listed would add to the cost of ownership and therefore reduce market value. 
Respondents’ evidence 
13.	In his expert report dated 16 September 2009, Mr Graham expressed the view that the value of the appeal property was £300,000 at the valuation date.  He produced details of nine comparable transactions, including the sale of the appeal property in 2002.  Six of the remaining comparables were in Broom (29 Mill Lane; Mill House, Mill Lane; The Stables, Mill Lane; The Old Chapel, Mill House, Mill Lane; 11 High Street and 23 High Street).  Mr Graham also referred to the sales of 10 Arrow Grange, Arrow and Schoolmaster’s Cottage, Ardens Grafton.  The nine properties were sold at different dates between October 2002 and May 2006 and the prices paid ranged from £248,000 to £440,000.  In arriving at his valuation, Mr Graham relied in particular on three of the nine, namely 10 Arrow Grange, The Stables and 29 Mill Lane.  
14.	Although Mr Graham had had regard to the other comparables that he had produced, he felt that these three were the most comparable.  In his expert report he said that, when adjusted to reflect differences, they showed a range of values for the appeal property between £310,000 and £320,000 (amended in oral evidence to £305,000 to £320,000).  He considered that a value of £300,000 to £320,000 was achievable and 
“in trying to facilitate an agreement I settled on the lower value of £300,000.  However, £275,000 is the value suggested to HMRC as an indication of the lowest figure at which I would consider an agreement acceptable.”
Conclusions
15.	I deal firstly with the professional opinions of value which have been submitted as evidence.  Mr Chadwick urged me to place most weight on the two valuations at £250,000, which were provided to the appellants by estate agents with strong local knowledge.  Although at first glance this submission is attractive, its strength is weakened by the fact that neither of the authors of the two valuation reports was submitted for cross-examination before me.  
16.	On 4 January 2010 Mr Dickenson wrote to the Tribunal, saying that he had been asked to supply expert evidence in relation to the current appeal.  He explained that, when he valued the appeal property at £250,000 in January 2006, he was not aware of the details of Mr Hobart’s purchase in 2002.  In 2007 he had provided the appellants with “comparator sales information of properties in the area which would have been relevant to my own assessment”.  That information had been incorporated in the appellants’ report, submitted to Mr Graham on 23 August 2007.  Mr Dickenson continued:
“I was then approached in the early spring of 2008 to provide further assistance when the executors were being required to compile a statement of case relevant to the appeal. 
I provided further advice on the subject of property comparisons.  Additionally I gave specific advice on the technicalities and principles of the valuation process.  I provided guidance in view of the fact that I now understood that the valuation I had provided was less than the figure paid for the property.  I recognise my thoughts in the text of the sections (7 and 8) regarding valuation in the executors’ statement of case.  This has been expanded by due reference to previous Lands Tribunal case history.  I believe that these references are of value in upholding the executors’ case. 
It should be noted that the executors’ submission of case is extremely comprehensive in terms of both personal, technical and comparator evidence.  Such a document if compiled by legal/valuation specialists would have been very costly.  I sought to assist in the provision of evidence and advice as a way of ensuring that the executors compiled their document at minimal expense.  I believe that the executors have presented a sound case.  
The valuation process involves professional knowledge and experience.  The outcome can never be fully guaranteed as individual judgment is involved.  I am perfectly confident in my assessment of the valuation of The Smokery House in December 2005 given its property characteristics and my knowledge of the local market.  This confidence is supported by the fact that a second valuation, entirely independent of my own, resulted in an identical valuation figure.”
17.	I asked Mr Chadwick why neither Mr Dickenson nor Mr Ball was present at the hearing.  He replied that Mr Ball had retired six months earlier.  Mr Dickenson had been asked whether he would be available to give evidence and replied that he had undergone a serious operation and should not be subjected to stress.  I then asked Mr Chadwick whether Mr Dickenson had refused to attend the hearing.  Mr Chadwick replied
“I did not want to present him with that difficulty.  I thought that the information which had been supplied was sufficient.”
18.	Mr Dickenson’s letter to the Tribunal was written three and a half months after the date of Mr Graham’s expert report.  It contained a declaration that Mr Dickenson understood his duty to the Tribunal as an expert witness.  Unfortunately, Mr Chadwick did not consider it necessary to show Mr Graham’s report to Mr Dickenson when he instructed him to write to the Tribunal.  In his report, Mr Graham referred to various comparable transactions to which he had had regard when arriving at his valuation.  Several of the properties concerned were not mentioned in the report which the appellants prepared in August 2007 and which incorporated details of the comparables provided by Mr Dickenson.  I infer, therefore, that Mr Dickenson was not aware of certain of Mr Graham’s comparables when he arrived at his valuation figure.  Whether he was aware of them or not, the failure to supply him with Mr Graham’s report has meant that Mr Dickenson has not had to address Mr Graham’s comparables, and say whether or not they led him to change his opinion of value.  Such clarification would not have required Mr Dickenson’s appearance at the hearing; he could have included it in his letter of 4 January 2010.  Alternatively, the appellants could have responded to the observation in Mr Graham’s report that the appellants had been unwilling for negotiations to take place between him and the local estate agents, by asking Mr Dickenson to endeavour to persuade Mr Graham that his valuation of £250,000 was correct.  Had such discussions taken place, and led Mr Dickenson to increase his valuation, he would have been under a professional obligation, as an expert witness, to inform the Tribunal of the position. 
19.	In those circumstances, I am unable to attach any significant weight to the valuation reports which have been produced on behalf of the appellants.
20.	The other professional valuation adduced in evidence was Mr Graham’s figure of £300,000, which he was prepared to reduce to £275,000 in an attempt to secure a settlement.  The summary of Mr Graham’s views in his formal report included the following observation:
“Although I have acknowledged the fact that the property was purchased directly from the vendor when it was purchased in 2002, I find it difficult to completely disregard the price paid and feel, despite comments to the contrary, that there must have been some regard to what the market place would have achieved at the time.  Bearing that in mind, I would also expect that a significant uplift in value would be expected between the date of purchase and the date of death.  The suggested drop in value as indicated by the executor’s valuation is considered unsupportable from the comparable evidence.”
21.	The uncontested evidence as to the circumstances of the 2002 purchase of the appeal property was as follows.  The late Mr Hobart was born in 1919 and lived in north London.  A widower since early 1999, by early 2001 he had decided that he could no longer look after himself adequately and needed to move from his detached house to sheltered/assisted accommodation.  After a long and unproductive search, he bought the appeal property in October 2002.  The property was a matter of yards from the back door of his daughter’s home at Yew Tree House.  The then owners of the appeal property knew that it would be ideal for Mr Hobart, since it would enable him to live in what would in effect be sheltered accommodation, extremely close to his daughter and son-in-law, whilst retaining the privacy and freedom of his own property.  The appeal property 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 the fact that no estate agent’s commission would be payable.
22.	The circumstances of the 2002 sale therefore meant that the price paid did not conform to the definition of market value in section 160 of the 1984 Act, namely the price which the property might reasonably be expected to fetch if sold in the open market.  On the contrary, it represented the value of the property to a special, and anxious purchaser.  In my judgment, Mr Graham was wrong to take it into account when arriving at his opinion of open market value some three years later.
23.	In view of the deficiencies of the three valuations, I have concluded that the most reliable assistance is provided by the sales in respect of which most detailed information has been provided, namely the three comparables relied upon by Mr Graham.  
24.	I inspected those three properties externally following my visit to the appeal property.  In each case I have adjusted the sale price to reflect the property’s different characteristics compared with the appeal property.  Mr Graham did not suggest that any of them suffered from significant internal disabilities, or enjoyed internal advantages by comparison with the appeal property, apart from better décor in the case of 10 Arrow Grange.  In those circumstances, I consider it appropriate to analyse the three sale prices by reference to the respective internal floor areas.  I have borne in mind that, in the light of my inspection, I do not agree with Mr Graham’s comment that the appeal property
“is an attractive barn conversion which in my opinion is comparable in particular to the property in Arrow (10 Arrow Grange, Arrow).”
25.	In my view the front elevation of the appeal property – which is the first thing a prospective purchaser would see – has a disjointed appearance, in a variety of architectural styles and materials on the ground floor and with unusually small windows at first floor level.  By contrast, 10 Arrow Grange has an attractive façade, with a ground floor of brick walls and exposed timber framing and a tiled roof with matching dormer windows above.  The relatively unattractive appearance of the appeal property would, in my view, have resulted in reduced interest from potential purchasers, notwithstanding the quality of the rear views to be enjoyed from its windows at first floor level.  In my opinion the values of the appeal property suggested by the three comparables are as follows:
The Stables, Mill Lane, Broom
Sale price (adjusted for time per Mr Graham) 	£390,000
Deduct
10% for less attractive appearance and location 	£  39,000
		£351,000
Equivalent price = £351,000 ÷ 183m2 = 1,918 per m2
Applied to appeal property:
Main space –	116m2	at £1,918 = 	£222,488
Conservatory 	    5m2 	at £1,000 = 	£    5,000
Smokery 	  21m2 	at £   500 	£  10,500
		£237,988
Add
for second garage	£    5,000
		£242,988	say £243,000
29 Mill Lane, Broom
Sale price (adjusted for time per Mr Graham)	£310,000
Deduct
5% for not being detached	£   15,500
		£294,500
Equivalent price =£294,500 ÷ 149m2 = £1,976 per m2
Applied to appeal property:
Main space 	116m2 	at £1,976 = 	£229,216
Conservatory 	    5m2 	at £1,000 = 	£    5,000
Smokery	  21m2 	at £   500 = 	£  10,500
		£244,716
Add
for second garage 	£    5,000
		£249,716	say £250,000
10 Arrow Grange
Sale price (no time adjustment per Mr Graham)	£385,000
Deduct
20% for less attractive appearance and location and 
inferior décor	£  77,000
		£308,000
Equivalent price = £308,000 ÷ 145m2 = £2124 per m2
Applied to appeal property:
Main space 	116m2 	at £2,124 = 	£246,384
Conservatory 	    5m2 	at £1,100 =	£    5,500
Smokery 	  21m2 	at £   550 = 	£  11,550
		£263,434
Add
for second garage 	£    5,000
		£268,434	say £269,000
26.	I have had regard to the fact that, since 10 Arrow Grange is situated in a different village, accurate comparison with the appeal property is more difficult than in the case of The Stables and 29 Mill Lane.  I determine that the market value of the appeal property on 21 December 2005 was £250,000.  The appeal is allowed.
27.	In proceedings conducted in accordance with the Tribunal’s simplified procedure costs are only awarded in exceptional circumstances.  No such circumstances arise in this case and I make no order as to costs.
Dated 25 March 2010

N J Rose FRICS