Property Valuation

Property Valuation

How Much Is A Half?

DAVID COLLISON CTA (Fellow), FCA, TEP analyses the Special Commissioner's consideration of how to value a half share in a house in Arkwright.

SOMETIMES ONE'S FIRST reaction on reading a case is to say: 'why didn't I think of that?' Arkwright v CIR [2004] STC (SCD) 89, on appeal [2004] STC 1323, is just such a case. Reduced to its essentials, the case can be summarised as follows.

Mr and Mrs Williams owned a house in equal shares. The house was valued at £550,000. Mr Williams died. The Revenue said that Mr Williams' half share is valued at £275,000 and inheritance tax was payable on its passing to his children. The executors said that Mr Williams' share was worth a lower figure and no inheritance tax was payable. The Special Commissioner said that the Revenue is wrong and the executors are right.

Dr Nuala Brice, the Special Commissioner, refused to give the actual valuation in monetary terms, but laid down the framework for the Lands Tribunal to use in order to determine the value of the half.

After this, the story gets more confused. The Revenue appealed to the High Court. There, Mr Justice Gloster said that the Special Commissioner was right in the law but wrong to trespass onto the jurisdiction of the Lands Tribunal in specifying a method of valuation. Special Commissioners decide the law on valuation of land; the Lands Tribunal determines the value.

We now await the decision of the Lands Tribunal.

Logic

Why is the value of a half not 50 per cent of the value of the whole? Mr and Mrs Williams were married, so the half interest has to be valued taking into account the related property owned by the spouse (see IHTA 1984, s 161(1)). This means that we have to take a proportion of the value of the whole, without the discount that would apply when the co-owners are not a married couple.

Thus, in Wight & Moss v CIR 264 EG 935 the Lands Tribunal looked at the value of a half share in 42 Totterdown Road, Weston-Super-Mare, owned by two elderly ladies. The tribunal declared that the value of the half share is to be computed by applying a 15 per cent discount to one half of the value of the whole house, unencumbered. This discount reflects the fact that a half share is an unattractive purchase in the marketplace. Since 1981, I have had a niggling thought that the discount should not be fixed, but the expected length of time before the other half share comes onto the market should affect the discount.

Arkwright: the facts

In Arkwright, there is a different argument. Let us first look at the facts. On 20 June 1979, Bernard Everall Williams and his wife, Margaret Patricia Williams, purchased Ash Lane Farm as their matrimonial home. Mr and Mrs Williams held Ash Lane Farm as tenants in common in equal shares and occupied it together until Mr Williams died, aged 83, on 18 February 2001. Mrs Williams was then 79 years of age and in good health. Included in the estate of Mr Williams at his death was the beneficial ownership of his 50 per cent share as tenant in common of Ash Lane Farm, which passed (after a deed of variation) to his two daughters.

For inheritance tax purposes, Mr Williams' one half interest has to be valued immediately before his death (IHTA 1984, s 4(1)), as tenant in common with his wife. A one half interest in property is a bundle of rights in that property. Mrs Williams also held a bundle of rights in that property and her rights limited the rights of Mr Williams. Most importantly, Mrs Williams had rights under the Trusts of Land and Appointment of Trustees Act 1996. Section 12(1) of the Act gives a co-owner the right to occupy the land at any time. The effect of s 13 is to strengthen those rights, by stating:

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