Neutral Citation Number: [2004] EWHC 1720 (Ch)
Case No: CH/2004/APP/0057
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 16/07/2004

Before :

THE HONOURABLE MRS JUSTICE GLOSTER
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Between :

	THE COMISSIONERS OF INLAND REVENUE	Appellants	
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	SANDRA ARKWRIGHT AND NANETTE SELLARS THE PERSONAL REPRESENTATIVES OF BERNARD EVERALL WILLIAMS deceased	Respondents	

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Miss Selway (instructed by The Solicitor of Inland Revenue) for the Appellants

Mr Maugham (instructed by Hague  Lambert Solicitors) for the Respondents

Hearing date: 20 May 2004
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Judgment
Mrs Justice Gloster : 
1.	This is an appeal on a point of law pursuant to section 225 of the Inheritance Tax Act 1984 (“the IHTA”) against certain preliminary decisions of law of the Special Commissioner (Dr Nuala Brice) given on 11 December 2003. 
2.	The Special Commissioner’s decision against which the Revenue appeals is set out at paragraph 72 of her judgement as follows; 
“ My decisions on the issues for determination in the appeal are:
(1)	that the appeal should not be struck out because the main question in dispute is not a question as to the value of land
(2)	that the value of Mr Williams’ interest in Ash Lane Farm was less than a mathematical one-half of the vacant possession  value and that it should be valued taking into account:
a)	the rights of occupation given to Mrs Williams by the [Trusts of Land and Appointment of Trustees Act 1996 (“the 1996 Act”)]
b)	the decrease in the value of Mr Williams’ interest which occurred by reason of his death; and
c)	the related property provisions, namely the value of the aggregate; the value of each share separately and the ratio; and the application of the ratio to the aggregate; if (and only if) the value of deceased’s share of the aggregate is greater than the value of his separate share, the value of his share is taken to be his part of the aggregate.”
3.	The facts which gave rise to this appeal are not in dispute and are as follows. On 20 June 1979 Bernard Everall Williams (“the Deceased”) and his wife, Margaret Patricia Williams (“Mrs Williams”), purchased the freehold property, Ash Lane Farm, Seven Sisters Lane, Ollerton, Knutsford, Cheshire WA16 8RG (“ the Property”) as their matrimonial home. The Deceased and Mrs Williams held the property as tenants in common in equal shares and occupied it together until the Deceased’s death on 18 February 2001 at the age of 83. He died of metastatic hepatic carcinoma, having been diagnosed with that illness on 31 January 2001. At the date of his death, Mrs Williams was 79 years old and in good health. The respondents to this appeal, and the appellants before the Special Commissioner, are the daughters of the Deceased and Mrs Williams, namely Mrs Sandra Gay Everall Arkwright and Mrs Nanette Patricia Everall Sellars  in their capacity as the personal representatives of the Deceased (“the Personal Representatives”). Under his will, the Deceased gave Mrs Williams a life interest in his fifty percent share as a tenant in common in the Property with the remainder to his daughters. By a deed of variation dated 6 January 2002, that gift was varied under section 142 of the IHTA so that the Deceased’s interest in the Property vested directly in his daughters. Under section 142 of the IHTA that variation applies as if it had been effected by the Deceased. As a result of the deed of variation, the Deceased’s half share in the Property had to be valued for inheritance tax purposes at his death. It is agreed between the Revenue and the Personal Representatives that the open market value of the Property on 18 February 2001 was £550,000. 
The dispute
4.	The Personal Representatives contended to the Revenue that Mrs Williams’ undivided half share in the Property was more valuable at the date of death than the Deceased’s share. As a result, the Revenue issued notices of determination dated 24 February 2003 to the Personal Representatives in the following terms: 
“That having regard to the provisions of section 160 and 161 [of the IHTA] the value of the [Deceased’s] interest is a mathematical one half of the vacant possession value of the Property.  ”
The proposition underlying that notice of determination was that the Deceased’s share and Mrs Williams’ share had the same open market value on 18 February 2001. Sections 160 and 161 include the related property valuation provisions.
5.	By notice of appeal dated 31 March 2003 the Personal Representatives duly appealed against the determination by the Commissioners that, for the purposes of the IHTA, the value of the Deceased’s fifty percent share as tenant in common of the Property was a mathematical one-half of the vacant possession value thereof. 
6.	At the hearing before the Special Commissioner a preliminary point was taken by the Revenue to the effect that, by virtue of section 222 (4A) and section 222(4B) of the IHTA, the Special Commissioner had no jurisdiction to hear the Personal Representatives’ appeal because the question in dispute was “a question as to the value of land in the United Kingdom”. Accordingly the Revenue, then appearing by Mr P R Twiddy of the Revenue’s Capital Taxes Office, applied for the appeal to be struck out. This application was opposed by the Personal Representatives on the ground that the question in dispute was a matter of statutory interpretation and thus for decision by the Special Commissioners. The Special Commissioner, Dr Brice, heard the application to strike out on 4 November 2003, followed immediately by  the hearing of the substantive appeal. 
The issues that arise on the appeal to this court
7.	In its notice of appeal and skeleton argument presented to this court, the Revenue took as its first point that the Special Commissioner was wrong not to strike out the Personal Representatives’ appeal on the grounds that 
“ the central question in the appeal is the value of land in the UK. That is within the jurisdiction of the Lands Tribunal and not the special commissioners” 
It was submitted in the Revenue’s written submission that the fundamental error which the Special Commissioner had made in her preliminary decision was to trespass into the field of land valuation. However, at the start of the hearing before  me, counsel for the Revenue, Miss K. Selway, accepted that the Personal Representatives’ appeal should not have been struck out on the grounds presented by the Revenue before the Special Commissioner.
8.	That concession was, in my judgement, rightly made. The issue of law that arose before the Special Commissioner, and with which she had clear jurisdiction to deal, was the Personal Representatives’ appeal against the Revenue’s determination that the Deceased’s half share in the Property was inevitably a “straight” mathematical one-half of the vacant possession value of the property, by reason of the related property provisions of sections 160 and 161(4) of the IHTA. That issue (namely whether the related property provisions applied such as to predicate that the value of the Deceased’s half share was a mathematical one-half of the vacant possession value of the Property) was a  question of law on the construction of the statute. The Special Commissioner was, in my judgement, clearly entitled to decide what was the construction and effect of section 161 and whether the provisions of section 161(4) applied as the Revenue contended. If the Revenue had indeed been correct about the application of section 161(4), there would have been no room for debate about, or indeed any evidence as to, the valuation of a half share in the Property (once the vacant possession value of the property had been agreed) because, had the related property provisions of section 161(4) applied, the Deceased’s half share would have been valued at a mathematical one-half of the vacant possession value of the Property.
9.	Given that the Revenue accepted in its skeleton argument before this court that section 161(4) has no application and that the conclusions of the Special Commissioner as set out in paragraphs 35 to 45 of her preliminary decision are correct, there can be no basis (a) for the submission that the Special Commissioner did not have jurisdiction to decide that discrete issue of law, viz. the applicability of section 161(4), or (b) for the submission that the Personal Representatives’ appeal should have been struck out. 
10.	However the real gravamen of the Revenue’s complaint about the decision of the Special Commissioner before this court, as developed in the course of argument before me, is that, having decided the first issue of law, the Special Commissioner wrongly went on to consider various principles and methods of valuation to reach the determinative conclusion that the value of the Deceased’s interest in the Property was, as a matter of fact, less that a mathematical one-half of the vacant possession value, and to express certain views about what the valuation should take into account. Thus the Revenue criticised, in particular, the decision of the Special Commissioner  at paragraphs 14 to 24 of her judgement, whereby she purported to apply what she referred to as “the normal rules of valuation” to reach the conclusion set out in paragraph 24 that 
“on the ordinary method of valuation, [I] would conclude that the value of Mr Williams’ in [the Property] was less than a mathematical one-half of the vacant possession value”
What is said by the Revenue is that, given regulation 23 of the Special Commissioners (Jurisdiction and Procedure) Regulations and section 222(4A) of the IHTA, the Special Commissioner should not herself have come  to any conclusion as to the value of the Deceased’s interest in the Property but rather, having decided the first question of law, should have immediately ordered a reference of the question of valuation to the Lands Tribunal.
11.	In my judgement, there is force in this aspect of the Revenue’s criticism of the preliminary decision of the Special Commissioner. 
12.	Thus, whilst in my judgement the Special Commissioner was clearly entitled to conclude that, because section 161(4) did not apply, the value of the Deceased’s interest in the Property was not inevitably a mathematical one-half of the vacant possession value, it was not for her to go on to determine, as she did in paragraph 24 that, as matter of fact, the value of his interest was indeed less than a mathematical one-half of the vacant possession value.  That was  properly an issue that should have been referred to the Lands Tribunal for determination by it.
13.	Further, the Revenue criticised the conclusion, as set out in paragraphs 23 and 72(2)(a) of the Special Commissioner’s decision, that the Deceased’s interest in the property “should be valued taking into account (a) the rights of occupation given to Mrs Williams by the 1996 Act” in so far as it led to , or supported, her conclusion that the value of the Deceased’s interest in the property was in fact less than  a mathematical one-half of the vacant possession value. Paragraph 23 of the Special Commissioner’s decision was as follows:
“Mr Maugham cited Lynall v Inland Revenue Commissioners [1972] AC 680 at 694C, 695G, 697H, and 698F as authority for the principle that the 1984 Act assumes an open market hypothetical sale immediately before the death between a hypothetical willing vendor and a hypothetical willing purchaser who has informed himself of all the available facts relating to the property. He argued that, in valuing Mr Williams’ share, the available facts would include the fact that both Mr and Mrs Williams were tenants in common in equal shares of the property. The hypothetical willing purchaser would also be aware that, pursuant to the 1996 Act, each spouse enjoyed rights over the property by virtue of being tenants in common and that such rights reduced the open market value of the other’s share. The hypothetical willing purchaser would also know that, immediately before the death of Mr Williams, Mrs Williams was in occupation of the property which had been purchased to provide her and Mr Williams with a home and that she would be in occupation no longer than Mr Williams who was older than she was and not in such good health. He would, therefore, discount the value of Mr Williams’ interest to take account of the fact that  the purchaser of that interest would be unable to benefit from his interest until Mrs Williams died. In valuing Mrs Williams’ share the hypothetical purchaser would no that Mr Williams was older than she was and not in good health, and that, after his death, Mrs Williams would have a right of continuing occupation. It followed that the value which a hypothetical willing purchaser would place on Mr Williams’ share immediately before his death would be less than the value that the same hypothetical willing purchaser would place on the value of Mrs Williams’ share immediately before the death of Mr Williams. It followed that the values of the two shares were not identical. I find these arguments persuasive and, on the ordinary method of valuation, would conclude that the value of  Mr William’s interest in Ash Lane Farm was less than a mathematical one-half of the vacant possession value.”
14.	The Revenue does not criticise the proposition that a purchaser might take into account the fact that Mrs Williams had rights under the 1996 Act and that, accordingly, the valuation of the Deceased’s half share might be adversely affected by the existence of such rights. What it says, however, is that this was not a matter for the Special Commissioner to decide; that there was no evidence before her that such rights were a matter (let alone the only matter) which a purchaser would take into account in valuing a beneficial half share in land; and that accordingly, whether such rights did impact on the valuation of the Deceased’s half share should have been left to the Lands Tribunal to decide.
15.	In my judgement, the Revenue’s criticism in this respect is also well founded. Whether a notional purchaser of the Deceased’s half share might take the existence of Mrs Williams’ rights under the 1996 Act into account and, if so, how this would affect the value, was a valuation issue that should have been referred to the Lands Tribunal to decide on appropriate evidence.
16.	The Revenue’s next criticism was directed at paragraph 72(2)(b) of the Special Commissioner’s decision, namely that the value of the Deceased’s half share should be determined “taking into account…(b) the decrease in value of [the Deceased’s] interest which occurred by reason of his death” The Revenue makes two criticisms of this conclusion. First it says that the Deceased’s death did not cause his share in the property either to increase or decrease in value for the purposes of section 171 of the IHTA and that it had exactly the same value before and after his death; secondly it was submitted that it was for the Lands Tribunal to decide whether, and, if so, to what extent, the value of the Deceased’s estate was reduced by reason of his death so as to fall within section 171.
17.	Section 171 provides as follows:
“ (1) In determining the value of a person’s estate immediately before his death changes in the value of his estate which have occurred by reason of the death and fall within subsection (2) below shall be taken into account as if they had occurred before the death.
(2) A change falls within this subsection if it is an addition to the property comprised in the estate or an increase or decrease of the value of any property so comprised, other than a decrease resulting from such an alteration as is mentioned in section 98(1) above; but the termination on the death of any interest or the passing of any interest by survivorship does not fall within this subsection.”
18.	At the hearing before the Special Commissioner, Mr Twiddy for the Revenue argued that the proviso to section 171(2) applied and that accordingly the Deceased’s death was not to be taken into account in determining the values. Before me it was common ground between the Revenue and the Respondents that Mr Twiddy’s submission was wrong on this point and that the Special Commissioner had correctly concluded that the proviso to section 171(2) did not apply, as the Deceased’s interest did not terminate on his death nor did it pass by survivorship. In my judgement, however, in circumstances where (as was common ground before me) the legal nature and incidents of the Deceased’s interest as a tenant in common was not affected by his death or by the imminence of his death, it is essentially a question of fact, for determination as a valuation issue by the Lands Tribunal, whether the imminence of his death, or his actual death, did, or did not, reduce the value of his interest to a notional purchaser (because of the widow’s rights of occupation under the 1996 Act or otherwise). If either event did do so, then that is a matter that can obviously be taken into account in the valuation and it is irrelevant whether such reduction falls to be considered under section 171 as occurring on death or prior to death.
19.	Accordingly in my judgement the Revenue’s criticism of the Special Commissioner’s decision in paragraph 34 and 72(b) is justified to this limited extent.
20.	Finally the Revenue criticised the Special Commissioner’s so-called determination in paragraph 72(2)(c) of her decision as being no more than a summary of the related property provisions in section 161. It is clear from paragraphs 38 and 39 of the Special Commissioner’s decision that the effect of the related property provisions of section 161 were agreed between the parties, save for the Revenue’s criticisms in relation to section 161(4) which, as I have already said, were not pursued in its Notice of Appeal or before me. So nothing turns on this ruling.
Conclusion
21.	Accordingly, to the above, limited, extent I allow the Revenue’s appeal. I direct that the matter should (in the absence of agreement between the parties) be remitted to the Lands Tribunal to determine the open market value of the two shares. I also direct that the Lands Tribunal is not bound by the preliminary decision of the Special Commissioner in so far as those decisions purported to express a view as to the value of the Deceased’s half share and the factors that affected such values.
Costs
22.	I shall hear argument as to the correct order as to costs.