Inheritance tax manual - Practice Note 1 : Valuations for Revenue Purposes

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Practice Note 1 : Valuations for Revenue Purposes

The Concept of Market Value

1. Introduction

This note gives guidance on the general principles of open market valuation as they relate to Inheritance Tax and Capital Gains Tax. These principles will also apply in respect of any valuations for Capital Transfer Tax. For Income and Corporation Tax there may be other statutory assumptions which have to be made, see para 2.3 below.

2. Statutory Provisions

2.1 The statutory definitions of market value are contained in the following Acts:
  • IHT

S.160 Inheritance Tax Act 1984 (IHTA 1984 formerly the Capital Transfer Tax Act 1984) defines market value for IHT as follows:-

".... the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time."

  • CGT

S.272(1) and (2) Taxation of Chargeable Gains Act 1992 (TCGA 1992) defines market value for CGT purposes as follows.

".... the price which [the] assets might reasonably be expected to fetch on a sale in the open market. In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time."

2.2 The sections in the IHTA 1984 & TCGA 1992 closely follow one another and broadly define market value as:-

The price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time.

Since the statutory definition of market value is stated in very broad terms, it has been illuminated by numerous judicial decisions.

For the most part the decided cases have been concerned with the interpretation of the Estate Duty provisions, but the principles illustrated by those cases may be taken to apply equally to IHT and CGT.

There is only one absolute qualification contained in the statutory definitions set out above and that is, that the price is not to be reduced on account of the market being flooded by reason of the assets to be valued being marketed at the same time. In Duke of Buccleuch v CIR (1967) 1AC 506 (summarised at Appendix A hereof) Lord Reid said:

"If I am right in thinking that section 7(5) is dealing one by one with the units into which the estate has already been divided then the hypothetical sale which it envisages must be a supposed sale of one unit in the conditions which in fact existed at the date of the death. To add one unit to those which in fact were then for sale would not have disturbed the market. But if we had to suppose that a large number of the units owned by the deceased had been put on the market simultaneously, the conditions which in fact existed would have been materially altered and prices would have dropped. This is expressly dealt with by section 60(2) of the Finance (1909-1910) Act 1910, but I doubt whether this sub-section did more than express what was already implicit in the Act of 1894".

2.3 DVs should exercise caution in deploying the "Estate" concept fundamental to IHT death cases when valuing for other taxes, (see Henderson (Inspector of Taxes) v Karmel's Executors (1984) STC 572-578; decided in the Divisional Court. This was a CGT case in which a 6 April 1965 valuation was required following the sale in 1975 of freehold land with vacant possession. The taxpayer claimed that, as at 1965, the land should be valued with vacant possession as the company in occupation at the time had no tenancy and the taxpayer was, in any event, the freeholder of the land and a majority shareholder in the company with the power to sell the land with vacant possession.

Nourse J. determined that, on the facts, a tenancy of the land existed in 1965 and at that time, there were two assets, namely the taxpayer's freehold reversion subject to the tenancy and also the tenancy of the company in occupation. Consequently, the required value for CGT purposes, as at 6 April 1965 was "the reversion in the land expectant on the determination of the tenancy vested in the company".

In reviewing the Buccleuch case the judge stated "In my view it is impossible to describe the procuring of the extinction of a tenancy as part of the arrangements preliminary to a sale of the freehold".

In IHT death cases, the property which falls to be valued as at the date of death is the deceased's entire Estate, therefore it is permissible to consider the amalgamation (prudent lotting) of more than one asset where this will achieve the best possible price, eg a freehold agricultural property owned by the deceased and the deceased's controlling shareholding in a company holding a tenancy of the property. In these circumstances, the Capital Taxes Office , may seek to bring into charge not only the separate assets ie the freehold interest and the shareholding (which will reflect the value of the tenancy) but also the marriage value between them.

This is because a hypothetical purchaser would have the opportunity to purchase both assets at the same time and his/her bid would reflect the possibility of merging the freehold and the leasehold interest in the property, if he/she wished to do so. See package valuations Section 7 : para 7.32.

There is a clear distinction between valuing more than one asset forming part of an Estate for IHT, and a separate asset for other taxes. The "package valuation" approach would not be available for example when valuing in isolation the freehold interest in the agricultural property referred to above for CGT (this was the issue in the Karmel case). However, there is no reason why the concept should not be applied in other areas where a taxpayer disposes of more than one asset at the same relevant date; an occasion which would normally give rise to the realisation of marriage value and the instructing branch seeks to make a charge on both assets.

2.4 It is convenient at this point to break up the statutory definition and examine the case law applicable to each pertinent phrase separately.

3. "The Property"

3.1 Prudent Lotting

In Buccleuch it was held (Lord Reid) that "the property" does not refer to the whole estate but means any part of the estate which it is proper to treat as a unit for valuation. The case concerned the determination of what were the correct principles to apply in sub-dividing (prudent lotting) an estate into units for valuation purposes and it showed how greatly the total value of the estate might differ

3.2 Natural Units

Lord Reid continued "Generally, an estate will consist of natural units or parcels of property which can be easily identified without there being any substantial difficulty or expense in carving them out of the whole estate." On the other hand, "there is no justification for requiring elaborate sub-division of natural units, on the ground that, if that had been done before the hypothetical sale the total price for the natural unit would have been increased." The question of which units to value is a practical question to be solved by common sense. Prudent lotting was approved by the House of Lords in Buccleuch, where in the absence of evidence that the division into 532 units was unnatural or artificial, it was held that the Revenue's basis of valuation was correct.

3.3 Division into Lots

In Ellesmere v IRC (1918) 2 KB 735 (summarised at Appendix B hereof) the executors sold as one lot a miscellaneous collection of property, not even wholly contiguous. In this form the property was likely to appeal only to a speculator buying for division and resale at a profit. It was in fact divided and resold for considerably more than the original price. It was held that the open market price (or principal value) was a price based on the separate values of the various parts and it was indicated that the price must be estimated on the basis that the properties were sold in whatever lot or lots which would realise the best price (see paras 4.1 and 4.2 below).

3.4 Amalgamation of Lots

The principle of prudent lotting also extends to envisaging amalgamation into a single lot of a number of properties where this is necessary in order to achieve the best price. See Commissioners of Inland Revenue v Gray (Executor of Lady Fox deceased) (1991) summarised in Appendix F. This reasoning applies only to IHT/CCT cases and may not be appropriate for CGT cases where only the asset in question is being valued. (See para 2.3)

4. "The Price"

4.1 Gross Sale Price

The price should be the gross sale price without any deduction for the cost of sale (Duke of Buccleuch v IRC).

4.2 Not Highest Possible Price

It is not to be assumed that the best price is automatically the highest possible price that would be achieved. What is required is an estimate of the price which would be realised under the reasonable competitive conditions of an open market on a particular date (Lord Morris of Borth-y-Gest in Buccleuch).

Therefore, the best price need not necessarily be the highest, remotely obtainable price, but should be an estimate of the price which could reasonably be expected in the competitive conditions of the open market.

5. "If Sold"

5.1 A Hypothetical Sale
5.1.1 Hypothetical Sale, not an Actual Sale

The statutory definitions of market value are concerned with a hypothetical sale not an actual one. This was decided by a majority of the House of Lords in IRC v Crossman (1937) AC26 and confirmed unanimously in Buccleuch and Lynall v CIR (1972) AC 680 (summarised at Appendix C hereof). "It is irrelevant in arriving at the value to consider what would have been the circumstances attending an actual sale. It is not necessary to assume an actual sale; a hypothetical market must be assumed for all the items of property at the date of death. The impossibility of putting the property on the market at the time of death or of actually realising the open market price is irrelevant. In other words, you do not have to assume that the property had actually to be sold; the assumption is that it sold at the moment of death" (Lord Guest in Buccleuch).

5.1.2 A Sale must be Assumed

"So a sale in the open market must be assumed and this in some cases will involve an assumption of the satisfaction of such conditions as would have to be satisfied to enable such a sale to take place" (Lord Morris of Borth-y-Gest in Lynall). (Occasionally it may be necessary to assume the existence of a market where one does not exist).

5.2 Restrictions on Actual Sale -
5.2.1 The Crossman Principle

In IRC v Crossman (1937) AC 26 the subject property comprised unquoted shares subject to stringent restrictions on transfer which would have precluded an actual sale at open market value at the date of valuation. The House of Lords confirmed that the principal value of the shares was the price which would be realised in the open market at the date of valuation on the assumption that a purchaser would be registered as a holder of the shares subject to the same restrictions. This is referred to as the Crossman Principle.

"Upon a notional sale there must be notional or assumed passing of property. Insofar as the passing or transfer of property is thus notional or hypothetical, no restriction upon actual passing or transfer comes into question" (Lord Roche).

The "Crossman" case was concerned with the valuation of shares and it is sometimes argued that the principle involved is of no relevance to the valuation of real property.

Such a conclusion is clearly illogical and the Court of Appeal approved the application of the principle to a lease in Alexander v IRC. (See Appendix E hereof and also Executors of G A Baird v CIR - Practice Note 5 para 8.)

5.2.2 Actual Sale Forbidden

It is irrelevant that a sale in the open market is forbidden eg by restrictions contained in a company's articles of association. The whole property must be subjected to the test of a notional sale in a free market and any restrictions on free sale ignored. Where an interest in land is encumbered by restrictions on transfer viz an annual agricultural tenancy with a bar on assignment which prevents an actual sale (see Practice Note 4), a hypothetical sale must be envisaged on the assumption that a purchaser would be subject to the same restrictions.

In these circumstances, the valuation exercise involves estimating the price a purchaser would pay for the asset being valued, if he or she were able to acquire it (that transaction being free from restrictions on transfer) on terms that the asset would in the purchaser's hands be subject to the same restrictions on transfer as in fact it is.

5.2.3 The "Jameson Case" (The Right to stand in the Vendor's Shoes)

In AG(I) v Jameson (1905) 2 Ir R 218 it was held that the open market is a place where it is free for everyone who has the will and the money to come in and bid and the price is that which a purchaser would pay for the right to stand in the vendor's shoes with good title to get into them and remain in them and to receive all the profits subject to all the liabilities of the position.

See also Alexander v CIR (Appendix E hereof) for judicial comment on the right to stand in the deceased's shoes.

6. "In the Open Market"

6.1 The Hypothetical Sale

6.1.1 In Lynall (1969) 1 Ch 421, Plowman J in the High Court held that the property must be valued on the basis of a hypothetical sale in a hypothetical open market between a hypothetical willing vendor (who need not be the actual owner of the property in question) and a hypothetical willing purchaser on the hypothesis that no one is excluded from buying. (This perhaps overstates the hypothetical nature of the transaction). In the House of Lords, Lord Morris said "the price to be decided upon was that which would have been paid (a) by a hypothetical willing purchaser, (b) to a hypothetical willing vendor, (c) in the open market, (d) on the date of valuation".

6.1.2 The hypothesis should be built upon a foundation of reality - but this should not undermine the concept of the Hypothetical Sale

The statutory definitions refer to "the" open market and not "an" open market. This has sometimes been interpreted as meaning the real market made up of real people. However in Lynall Widgery LJ regarded the open market as a blend of reality and hypothesis. "It is desirable, in my opinion" he said "that when the Court is constructing the conditions under which the hypothetical sale is deemed to take place it should build upon a foundation of reality, so far as possible, but it is even more important that it should not defeat the intention of the section by an undue concern for reality in what is essentially a hypothetical situation".

Lord Justice Hoffman's comments in Gray (Executor of Lady Fox deceased) (Appendix F hereof) also stress that the hypothetical sale is founded upon reality.

6.1.3 Where the actual sale price differs from that reasonably expected to result from a Hypothetical Sale

The possibility exists, therefore, that an actual sale might result in a price which would differ from that which might reasonably be expected to result from a hypothetical sale (as in Crossman and Lynall). Consequently, when the property to be valued is sold, either immediately before or after the valuation date, the sale price may have to be rejected as evidence of open market value, if the sale does not conform with the hypothesis. However, where it is considered proper to depart from an actual sale price, DVs will need to show very good grounds for rejecting the market evidence (see also paras 8.5 and 8.6 below).

6.2 The Hypothetical Vendor and Purchaser
6.2.1 The Hypothetical Vendor

Since the majority judgement in IRC v Crossman (1937) the view has been taken that the Vendor is an imaginary person.

6.2.2 The hypothetical vendor might be the actual vendor or equally well may not be. One must therefore, only endow the vendor with the characteristic which must necessarily belong to all hypothetical vendors namely that of owning the property (per Cross LJ in Lynall).

6.2.3 The vendor was described in Salomon v Commissioners of Customs and Excise (1966) 3 WLR 36, as an imaginary person with no personal characteristics or attributes, positive or negative except a deemed desire and a full facility to take the property in question into the open market and there sell it for the highest price obtainable.

6.2.4 In CIR v Gray (Executor of Lady Fox deceased) he is described as an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant.

6.2.5 The Hypothetical Purchaser

The general principle approved by Lord Morris in Lynall is that the open market includes everyone who has the will and the money to buy. However, it is not clear from the authorities whether it must always be assumed that the purchaser is a hypothetical person or whether one can go so far as to identify the most likely actual purchaser with the hypothetical purchaser. (It is considered that the vendor is always hypothetical). It would be of no consequence - except that one has to make certain assumptions (eg. that the purchaser is prudent and will act with commercial common-sense) and it may be easier to do this if the hypothetical purchaser is always regarded as a hypothetical person, even if endowed with the same (or very similar) characteristics as the most likely actual purchaser. (See also paras 6.4.2 and 6.4.3 below).

6.3 The Willing Vendor and Purchaser
6.3.1 Presupposition that both Parties are willing

The hypothetical sale envisaged in order to ascertain the open market value for revenue purposes presupposes a willing seller and a willing buyer.

6.3.2 A willing seller is someone who is prepared to sell at a fair price

In CIR v Clay (1914) 3KB 466 (summarised at Appendix D hereof) Pickford LJ remarked that a willing seller "means one who is prepared to sell, provided a fair price is obtained. I do not think it means only a seller who is prepared to sell at any price and on any terms and who is actually at the time wishing to sell. In other words I do not think it means an anxious seller".

6.3.3 A willing purchaser

The willing purchaser is someone who is not only able and willing to purchase but neither unduly anxious nor unduly reluctant to do so.

6.4 The Prudent Vendor and Purchaser
6.4.1 Both parties must act prudently

Both parties must be assumed to act prudently. A hypothetical sale in the open market cannot reasonably be envisaged except on the assumption that a willing purchaser would be forthcoming at a price which a 'prudent' willing vendor would reasonably accept, ie the purchaser would be prepared to make 'a sufficient offer'.

6.4.2 A prudent purchaser will make reasonable enquiry into the facts concerning the property

Furthermore, it is considered that the willing purchaser would be a person of reasonable prudence. This presupposes that it is someone who has made enquiry into the relevant facts concerning the property.

In Lynall the main issue was whether certain confidential information would be available to the parties. It was however, decided that it would not and the valuer was to consider only such information as was generally available (including, it would seem, such information as an enquiry would have elicited if the identity of the enquirer was immaterial).

Legislative changes made as a result of the case (s.152 CGTA 1979 and s.168 IHTA 1984) relate only to unquoted shares etc.

6.4.3 A prudent purchaser will not rush into transaction

In Re: Holt (1953) 1 WLR 1488 Danckwerts J remarked that the purchaser would not rush hurriedly into the transaction but would consider carefully the prudence of the course and seek to get the fullest possible information. (This remark was approved by Lord Pearson in Lynall).

Moreover, according to Lord Reid in Lynall, the statute implies that there has been adequate publicity or advertisement before the sale and that steps have been taken before the sale to enable a variety of persons, institutions or financial groups to consider what offers they would be prepared to make.

6.5 The Means of Sale
6.5.1 The hypothetical sale may take many forms

In Lynall v CIR (1972) AC 680 Lord Reid said "No doubt sale in the open market may take many forms. But it appears to me that the idea behind this provision is the classical theory that the best way to determine the value in exchange of any property is to let the price be determined by economic forces - by throwing the sale open to competition when the highest price will be the highest that anyone offers. That implies that there has been adequate publicity or advertisement before the sale, and the nature of the property must determine what is adequate publicity. Goods may be exposed for sale in a market place or place to which buyers resort. Property may be put up to auction. Competitive tenders may be invited".

6.5.2 The hypothetical vendor must take reasonable steps to attract competition for the property

Following argument about the meaning of "in the open market" Lord Reid said in Buccleuch "Originally, no doubt when one wanted to sell a particular item of property one took it to a market where buyers of that kind of property congregated. Then the owner received offers and accepted what he thought was the best offer he was likely to get. And for some kinds of property that is still done. But this phrase must also be applied to other kinds of property where that is impossible. In my view the phrase requires that the seller must take - or here be supposed to have taken such steps as are reasonable to attract such competition as possible for the particular piece of property which is to be sold. Sometimes this will be by auction sometimes otherwise, there may be two kinds of market commonly used by owners wishing to sell a particular kind of property. For example, it is common knowledge that many owners of houses first publish the fact that they wish to sell and then await offers, they only put the property up for auction as a last resort. I see no reason for holding that in proper cases the former method could not be regarded as a sale in the open market".

6.5.3 Confidential deals are incompatible with the concept of the hypothetical sale

Lord Morris said in Lynall, "the market which must be contemplated ...... must be an open market in which property is offered for sale to the world at large so that all potential purchasers have an equal opportunity to make an offer as a result of its being openly known what it is that is being offered for sale. Mere private deals on a confidential basis are not the equivalent of open market transactions".

7. "At that time"

7.1 Valuation at the time of death or transfer

The statutory definitions direct that the value of the property "at any time" is the price it would fetch if sold "at that time". This means the sale is supposed to take place at the time of death or transfer and not after any interval.

7.2 It is to be assumed that preliminary arrangements have been made prior to the time of death or transfer

In Buccleuch Lord Denning said "You are to envisage a hypothetical sale in which all the preliminary arrangements have been made prior to the time of death so that the sale can take place at the time of death. Only in that way can you estimate the price it would fetch if sold at the time of death. The object is to get the value at the time of death and not at any other time; and you can only do that by assuming that all preliminary arrangements have been made beforehand." (For CGT valuations insert "date of valuation" for "time of death" in the above).

7.3 A sale at short notice is incompatible with the concept of the hypothetical sale

The hypothetical sale is not a sale at short notice but a sale for which full preparation is supposed to have been made beforehand.

7.4 The property is to be valued at the date of death or transfer disregarding any subsequent changes

In the ordinary course of events the request to carry out a valuation will be received at a time later (often considerably later) than the valuation date. In these circumstances the DV must go back in time and consider the state of the property and the locality at the valuation date ignoring (or discounting) any subsequent changes, whether these are improvements or a deterioration of the property or its locality. For example, money spent on repairs to a property in order to enhance the price between the date of death and an actual sale would clearly be a factor which should be ignored.

In Buccleuch Lord Reid said, "We must take the estate as it was when the deceased died; often the price which a piece of property would fetch would be considerably enhanced by small expense in minor repair or cleaning which would make the property more attractive to the eye of the buyer. But admittedly that cannot be supposed to have been done".

Furthermore, in IRC v Marr's Trustees (1906) 44 SLR 647 the Court rejected the sale price obtained for a prize herd of cattle four months after the death on the grounds that:

(i) the property was of a fluctuating character, depending on natural increment and there was a material change in it between the two dates, and

(ii) the sale was accompanied by advantageous circumstances (a sudden unexpected demand from Argentine breeders) not present at the date of death.

8. Special Purchaser

8.1 In IRC v Clay (1914) 3KB 466 "The Plymouth Nurses' Home Case" (summarised at Appendix D) a house which was worth only £750 as a private residence was sold for £1,000 to the trustees of an adjoining nurses' home, who were prepared to give £1,100. The Court of Appeal held that £1,000 was the market value, notwithstanding that the sale was to a Special Buyer.

8.2 In Clay Swinfen Eady LJ said "When the fact becomes known that one probable buyer desires to obtain any property, that raises the general price or value of the thing in the market. Not only is the probable buyer a competitor in the market but other persons, such as property brokers, compete in the market for what they know another person wants, with a view to re-sale to him at an enhanced price, so as to realise a profit".

8.3 An interest in land may have special value to the owner of a subordinate or a superior interest who may be able to realise substantial marriage value. This special value to a particular purchaser should be taken into account in the valuation exercise provided that the special purchaser can be shown to be willing and able to purchase at the valuation date. For example, in valuing the freehold interest of a house which is let at the date of valuation, the price which a tenant is prepared to pay should be reflected, provided that the DV is able to show that the tenant would have been in the market; and willing and able to purchase at the valuation date. This principle is supported by the decision in Clay.

8.4 The Clay case effectively established that where there is a purchaser willing to buy at a higher price than anyone else and the buyers presence in the market is known thereby enabling a vendor to rely on negotiating that price from him then the value is represented by the higher price or by a close approximation thereto. It should not be assumed that the special purchaser will always be the successful bidder because Clay indicates that potential bidders would include land brokers and speculators who consider that they could sell the land to the perceived special purchaser at a profit. The quantification of the special purchasers bid has caused difficulty in the past and DVs should refer to para 9.4 below and Section 7 paras 7.5-7.7.

8.5 Clay did not, of course, lay down that a price which has been obtained is necessarily as a matter of law the market value. In the High Court Scrutton J said (1914) 1 KB 339. "In my view, therefore, the referee was right in fixing £1,000 as the gross value of 83 Durnfold Street both in April 1909 when the nurses' home having offered Mrs Buchanan £850 and having been refused were enlarging No. 84 and in September 1910 when they bought No. 83 for £1,000. He was right in this, not because of the sale for £1,000, but because of the reasonable expectation that a willing seller could get £1,000 or more from the nurses' home. Referees in assessing gross value on the occasion of sales are not bound by the actual consideration figure, which may be a misunderstanding of market value without business foundation, but where they find a sale influenced by the business wants of the buyer and a profitable transaction to him I think they are justified in considering it, though no other buyer would give such a price except to resell to the one special client."

Scrutton J's approach was approved and echoed by each of the members of the Court of Appeal:-

Cozens-Hardy MR adopted a sentence from the passage quoted above.

Swinfen Eady LJ said "....the sum of £1,000 was arrived at because that was the sum which the land if sold at the time in the open market in its then condition might have been expected to realize. It happens also to be the price actually realized, but the figure was not arrived at on the latter ground".

Pickford LJ said, "I agree with Scrutton J that the referee is not bound to take the actual figure given, and should not do so arbitrarily, but should consider all the circumstances and estimate what he considers the value in the open market."

8.6 In Re: Walker (1915) AC 509 Lord Parmoor said; "Secondly, it was argued that the valuation of the referee was not properly made, in that he excluded from consideration the actual transaction of June 8 1911. I think it is clear from the statement of the referee that he did not exclude from his consideration the sum of £650 paid as the consideration for transfer on June 8 1911, but held that for special reasons this sum was in excess of market value. It is difficult to think that any referee would refuse to regard, as relevant evidence, the actual sum paid on a recent sale of the land which he is called upon to value. It is a very different matter to say that the referee is bound to accept the amount of the consideration as the market value......"

9. Basis of Valuation - Summary

The following principles emerge from the decided cases set out above:

9.1 The hypothetical sale takes place between a willing, but not anxious, vendor and a willing, though prudent, purchaser. Both vendor and purchaser are hypothetical. The sale occurs on the date of the deemed disposal; there has been adequate publicity and all necessary preliminary arrangements have been completed before the sale takes place. There is no restriction on the number of classes of possible bidders, nor on the chosen method of sale. It follows that:-

  • the vendor must sell on the day in question and cannot withdraw if the vendor does not like the price;
  • the vendor will sell at a fair price, ie at the best price obtainable from a willing, but prudent, purchaser.

9.2 The sale is wholly hypothetical and is therefore conducted between hypothetical parties. It follows that:-

  • the actual owner of the property at the material time is not the vendor in the hypothetical sale;
  • any actual person who was or might have been in the market for the property is not the hypothetical purchaser, but rather a special purchaser (see para 9.4 below).

9.3 The hypothetical purchaser is a prudent purchaser and therefore:-

  • would make full enquiries before agreeing to purchase;
  • would not be willing to go beyond a price which, on normal commercial principles, would give an appropriate return for the money. (In the case of domestic property this could consist of either actual use of the property, the obtaining of an income therefrom, the prospect of a sale and the realisation of a capital sum, or a mixture of all or any of these).

9.4 The existence of a special purchaser (ie a person generally known or assumed to be in the market for the property because of its special value to the purchaser and therefore likely to pay more for it than its 'normal value') must be taken into account; but market value is neither one bid over the 'normal value' (because of the possibility that a speculator would bid for the property in the expectation of being able to resell it at a profit to the special purchaser), nor the [top] price which the special purchaser would pay while still acting with commercial prudence (ie the value to the special purchaser). One of the factors which will influence the bid made by the hypothetical purchaser is the relative likelihood of a sale on, after the hypothetical sale, to a special purchaser; the greater the likelihood, the higher the bid. The hypothetical purchaser is entitled to consider what pressure can legitimately be brought to bear on the special purchaser to buy the property from him.

9.5 Open market value is "the price which the property [would] fetch if sold in the open market". This is the price which the hypothetical purchaser would pay and it is to be fixed by considering the matter generally, neither including nor excluding anyone in particular.

9.6 The DV must approach the valuation in a practical way, taking account of all the matters which would in reality have influenced a potential purchaser.

10. Case Law

The case law referred to in this Practice Note may be of assistance to DVs in correcting any misapprehensions that Taxpayers or their Agents may have in relation to the Revenue Basis of Valuation, and in particular where the DV's estimate of market value is in dispute.

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