The case of Foster -v- R & C Commissioners which came for the First Tier Tribunal last autumn is a clear example of how valuations in such cases will be treated by the Valuation Office Agency (VOA) and illustrates not only that hope value is relevant, but that the valuation should be treated on a 'top down' basis, assessing the value of a site with the assumption that it has full permission and that road access can be acquired, and then discounting backwards to reflect the risks that these valuation enhancements may not be easily available.
The facts in this probate case were that 6.39 acres of land were valued by the executors at £191,700 based on amenity value plus a premium for 'hope'. The land did not have road access and was outside the local development plan, but the VOA disputed the value and took the approach that the land should be valued as if these issues did not exist, but then to discount the value from the “top down”, recognising that a willing buyer would form an assessment of the likelihood of being able to surmount the problems and would discount the value so as to reflect the risks. The VOA approach meant that they determined a value of £850,000, assuming space for 50 houses, but discounting by 70% to reflect the inherent problems of the site and the possibility that they might not be overcome because of the uncertainty.
In settling the taxpayer’s appeal, the tribunal concluded that, in the particular circumstances of the case (as regards timing, local planning issues and the history of nearby sites) a willing buyer would exist and would be prepared to buy the site with the attendant risks. In the absence of direct comparables, the “top down” approach was the correct one to take. The only consolation for the taxpayer was that the FTT disagreed with the VOA on the detail of the calculations, finding that a 45 plot development was more realistic and also that an 80% discount would be more appropriate. Restating the value on this basis reduced the VOA figure from £850,000 to £590,000 – still some way above the taxpayer’s estimate of £191,700.
The conclusions which can be drawn from this case are threefold – firstly, where a site needs enhancement to secure a planning uplift, it will be valued on a “top down” basis, even if the taxpayer has no intention to develop. Secondly, the VOA will argue the point for amounts which, in some eyes, could be seen as relatively modest (the tax at stake here ending up at about £160,000) and thirdly, of course, that once again the man in the pub is just plain wrong, but the adviser can illustrate that with a relatively straightforward decided case.
The views expressed are the author’s and not ICAEW’s.
