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The importance of a quality farm valuation for probate, farm succession and inheritance tax planning

There are many ways that a farm probate valuation can be presented depending on who is providing the valuer with the information. Some farming family members have different views on the facts surrounding the farm and some might actually want a different understanding for appropriate tax planning.


It is interesting to look at the Palliser case in the context of farm valuations.

A recent Upper Tribunal (Lands Chamber) decision P Palliser v CRC has brought to the limelight the question of probate valuation and ‘hope value’. In this case the valuer had produced a much lower probate value (IHTA s 160) in August 2012 at £1.4 million compared to a sales price of £2.525 million for the shared property in March 2014. The reasons that the valuer gave for not incorporating hope value were because the property had a number of negatives and it was mentioned in the Royal Institute of Chartered Surveyor’s (RICS) “Red Book”. The Tribunal did not agree with the valuer for the taxpayer that there was “no hope value” – the property was marketed as having “great potential” and in need of modernisation. The Tribunal calculated the share property value at £2.016 million. Mr Palliser’s share was valued at £1.603 million which was £203,000 of ‘hope value’.

It can be seen that the Upper Tribunal did not just insist that there was hope value but presented their calculation thereof. Mr Palliser’s valuation was allowed in part. Mr Palliser was the son and personal representative of his father. Mr Palliser inherited the maisonette in North London.

As from August 2002, all tax property valuations that are used for all tax purposes should be conducted within the standards governed by the Red Book (the “RICS valuation bible”). Professional standards require comprehensive and thorough valuation 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 disciplines must apply themselves to the same definitions of market value. The probate valuation represents a document upon which the executor bases his IHT returns (the IHT400) dealing with market value under s 160 IHTA 1984 and the quantum of agricultural value under s 115(3) IHTA 1984. The executors and tax advisers rely heavily upon the quality of the opinions and the accuracy of such valuation workings 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 (APR). 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 detailed probate report is going to be far better received by the Capital Taxes Office/District Valuer (DV) than a report that lacks this professional duty of care. HMRC are more likely to be persuaded of the taxpayer’s position by the application of such professional excellence. All information supplied must tie into all other documentation, eg accounts, intended use of the property, marketing material etc.


The “precision and research” of the valuation is paramount. The valuer must not just be “fed information” by farming family members wanting to reduce the IHT liability, they should be checked. The facts of the valuation should be translated onto the IHT400 (the inheritance account) and also consistent and cross-checked with information contained within the IHT400 on the whole running of the farm. Many executors are unaware of the importance of the declaration associated with the IHT400 and how important it is that they check the valuation. As the example below shows the executor has made the “fullest enquiries”.


It is key to look at the elements of the declaration included on the IHT400. I set out elements of the declaration of the IHT400:

“To the best of my/our knowledge and belief, the information I/we have given and the statements I/we have made in this account and the schedules attached (together called ‘this account’) are correct and complete.

I/We have made the fullest enquiries that are reasonably practicable in the circumstances to find out the open market value of all the items shown in this account. The value of items in the box(es) listed are provisional estimates which are based on all of the information available to me/us at this time.”

“Fullest enquiries” means full and detailed checking of information supplied. Simple cross-checking is important. The key point arises in the declaration by the executor regarding “deliberate concealment”. A practical example is where the executor relies on a farming family member to give them details.

The declaration records:

“I/We understand that I/we may be liable to prosecution if I/we deliberately conceal any information that affects the liability to inheritance tax arising on the deceased’s death, or if I/we deliberately include information in this account which I/we know to be false.”


At the practical end of probate valuations some tax advisers and family members might be driven by tax planning and/or subjective “game playing” within the family. The question is asked who should be involved in the valuation and the supply of information? Whilst the executor instructs the valuer to arrive at correct values under s 160 and s 115(3) IHTA 1984, all the farming partners should be involved in providing information for their trading partnership.

An example is where one farming partner dies and his beneficiary is another farming partner with a possible “agenda” to present facts that sort the IHT position to their benefit. It could be that the third partner in the farming business is not asked for information but they have important information to provide to both the executor and valuer regarding the trading activity.

The farming partners should all be involved in the valuation of partnership property. If someone wants to exclude one of the farming partners from the facts surrounding the farming partnership, even if they are not a beneficiary of the Will, it is considered a worrying point of concern. Many of the surviving farming partners are born on the farm and have important historical and trading operation detail to be considered for inclusion in the valuation.


• Not including details of private horses and therefore a calculation of s 112 IHTA 1984 excepted assets for fields used solely for private purposes.
• Not including details of non-farming family members living in farmhouses, cottages and bungalows etc with a view to achieving greater IHT reliefs.
• “Massaging” the details of the farm in an attempt to achieve increased IHT reliefs. For example, showing greater involvement in the business than was the case.
• Buildings used privately by other family members


This article has already considered the Upper Tribunal case of Palliser with regard to hope 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 IHTA 1984, s 110, which states that:

‘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 paid 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 on “development hope value” 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 was the other farmland would be imperative and must be retained.

Care should be taken that there is not a ‘binding contract for sale’ in place at the date of transfer. Under IHTA 1984 s 113 such a contract will block BPR applying to the ‘hope value’. The exception to this under s 113 (a) is that the property is a business being sold to a company which is to carry on the business and consideration is wholly or mainly in shares.

When looking at the professional probate valuations for hope value it is very difficult to arrive at an accurate figure of what the “hope” value is. This has been considered in the case of Palliser. It is essential that the potential development land is farmed up until the date of death and not left redundant whilst waiting to develop the land.

How the land is subsequently marketed and dealt with must be considered. The probate value will form the basis of the consideration of the base cost for capital gains tax (CGT) in the subsequent sale.


The quantum of the valuation and elements of the valuation will impact on succession planning. The values could be used by the farming family with regard to succession planning in apportionment of the farm and Will planning. Clearly, one obvious example of the importance of accurate property values is that of the probate value of a farmhouse with regard to both market value s 160 IHTA 1984 and agricultural value. The latter is the value of the asset used in the trade of farming as if the asset were 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 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’, ie some hope of future development.


There are specific rules relating directly to farm cottages in terms of IHT relief and the valuation required. Under IHTA s169 Farm cottages occupied by farm employees only have to be valued at their agricultural value and can therefore achieve 100% relief for their agricultural value which for these purposes is the same as their market value. IHTA s169 states ‘no account shall be taken of any value attributable to the fact that the cottages are suitable for the residential purposes not so employed.

The valuation rule in IHTA 1984 s169 applies to cottages occupied by persons employed solely for agricultural purposes. So the question is whether there must be a contract of employment in place for the rule to apply. HMRC’s manual at IHTM 24034 does not suggest that there must be and it would cause anomalies if that were the meaning of the section. For example there might be a self-employed worker in the cottage, who works solely on the farm, but providing his own equipment etc, so not strictly an employee, but clearly the cottage in those circumstances ought to have the same treatment as one occupied by staff.

HMRC’s manual quotes from the case of Atkinson v HMRC which says that there needs to be ‘some sort of connection between the residential use of the cottage and an agricultural purpose sufficient to make the used occupation for the purposes of agriculture’. If the test were simply that cottages should be occupied by full time employees then the Tribunal could easily have said so, instead of the verbose statement it came up with.

The other point is that if they are not within the meaning of farm cottages, then they must be farmhouses, but HMRC generally resist the idea that a farm may have two or three farmhouses. This is a completely separate topic that will need to be dealt with separately.

A cottage let to a third party will not be within s169 and so must be valued at open market value.


The farm might not have been placed on the open market for sale for at least a century or several decades so tax advisers must be prepared for variances in value which can distort tax planning, especially in these current times of uncertainty. For those tax planners who are about to undertake pre-death tax planning, the accuracy of the valuation of the farm is of prime importance and quantum with regard to assessing the mitigation and prediction of future IHT liabilities and farm succession as to distribution of the farm.

This article sets out to show that the quality of farm property valuations for tax planning and farm succession purposes is equally as important as the probate value. The problem is that the farming family are often not prepared to incur the cost of a Red Book valuation. It is key that the tax planner carries out the full risk assessment of the valuation being wrong and discusses the range of values that could apply with the professional valuer. The question is asked, is the tax planner prepared to work with a value that is not ‘Red Book’? Clearly they must make the client aware of the quality of the valuation that they are working with and the impact of the tax work on changes in value.

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH. Tel: 01962 735544. Email;, Website; 

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).

Farming & Rural Business Community Newsletter – May 2018


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Butler & Co, Bennett House, The Dean, Alresford, Hampshire SO24 9BH

Butler & Co is the trading name of Butler & Co Alresford Limited registered in England (Company No. 10726923) and is regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.
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