Sometimes there are cases in the Upper Tribunal (Lands Chamber) (“the Tribunal”) that do not directly concern claims for compensation for compulsory purchase but do consider principles that are directly relevant to our practice.  Decisions on tax disputes have a particular affinity with land compensation as the law underpinning the valuation of property assets for tax purposes is very similar to Rule 2. Possibly the most frequently quoted case in compensation cases concerned inheritance tax (Executors of Lady Fox v Inland Revenue Commissioners (1994)). Since so many compulsory purchase compensation cases are settled before they are determined by the Tribunal, it is worth having these cases in our peripheral vision.

The case of Chifley Holdings Limited (BVI) v The Commissioners for His Majesty’s Revenue and Customs [2024] UKUT 00301 (LC) is one such case. The decision of Mr Peter McCrea OBE FRICS FCIArb (made on written representations and published on 25 September 2024)  considers the relevance of post-valuation date evidence and includes an afterword on the role of experts. A copy of the full decision can be accessed here.

The Chifley case was an appeal against a determination of HMRC in respect of the freehold value of 12 Chester Square, London, SW1W 9HH (“the Property”). It concerns the valuation of the Property on 1 April 2017 (“the relevant day” or “the valuation date”), which HMRC had determined to be within the £10-20 million bracket for the purposes of Annual Tax on Enveloped Dwellings (“ATED”). The appellant claimed that the value of the Property was £9,325,000 thus falling within the sub-£10 million bracket for ATED purposes.

The Property is a Grade II listed single-family house, located within the Belgravia Conservation Area. The Property is built over lower ground floor to fourth floor levels, and comprises five bedrooms, five bathrooms (three of which are ensuites), a sixth bedroom or gym area with shower room, plus garage and outside space. The Property had been acquired by the appellant in August 2011 for £9.5 million and subsequently refurbished, with the works carried out including an extension to the kitchen and totalling a cost of £500,000 inc. VAT.

The basis of valuation was not in dispute. In accordance with s102(1) of the Finance Act 2013, the value of a dwelling for ATED purposes is the ‘market value’ of the property on the relevant day. Taxation and Chargeable Gains Act 1992 (s272(1)) provides that the ‘market value’ is: “…the price which [the] asset[s] might reasonably be expected to fetch on a sale in the open market”.

 

Post-Valuation Date Evidence

The Chifley case is a helpful reminder of how case law on the relevance of post-valuation date evidence has evolved and the importance of distinguishing between events and evidence:

• In Melwood Units Pty Limited v Commissioners of Main Road [1979] AC 426, the retained land (some 25 acres) to the north of the acquired land (37 acres) was sold nine months after the valuation date and the Privy Council held that the subsequent sale was “a highly relevant piece of evidence for the evaluation of compensation”.
• In Meghnagi v London Borough of Hackney [2008] RBR 122 and Allen v Leicester City Council [2013] UKUT 22 (LC), the Tribunal was satisfied that it was permissible to take account of the subsequent sale of the actual property being valued in determining the compensation payable.
• In Bishopsgate Parking (No.2) Limited v The Welsh Ministers [2023] UKUT 22 (LC):

“…evidence of a post-valuation event may be relied on to establish an objective fact as at the valuation date. Thus, a comparable may provide evidence of what the hypothetical vendor and purchaser will in fact have agreed. That an actual vendor and an actual purchaser have agreed a price on a property that is comparable with the reference property is undoubtedly capable of constituting evidence of what would have been agreed in the hypothetical transaction for the reference property itself… Of course the degree to which a comparable transaction will assist in determining the price of the reference property will depend on how similar the factors that are material to the valuation were at, respectively, the date of the transaction and the date of valuation and on whether adjustments can satisfactorily be made for such differences as there were…”.

• In Castlefield Property Limited v National Highways Limited [2023] UKUT 217 (LC):

“As a general rule, without an express contractual or statutory instruction to do so… it would always be wrong to value land as if with knowledge of matters which were not known, and could not have been known at the valuation date.”

The Tribunal then makes three points, in summary, on the relevance of post-valuation date evidence:

1. Events (emphasis added) after the valuation date, which would not have been known to either the valuer or the hypothetical buyer/seller, should not be taken into account.
2. In conjunction with pre-valuation date transactions, transactions of comparable properties (especially in the case of a transaction on the subject property, or very similar properties in close proximity) around or some months after the valuation date, can help inform the valuer as to the state of the market in the months around the valuation date.
3. The further away from the valuation date a comparable transaction occurs, the less weight should be applied to it because it becomes ‘progressively unreliable’ as in the case of Segama v Penny Le Roy [1984] 1 EGLR 109. The same might be said for historic transactions but they should be treated differently because they are known to the market at the valuation date and sensible adjustments can be made to these.

There is some tension between impermissible post-valuation date events (point 1) and potentially impermissible transactions (point 2). To the extent that some transactions might have been affected by impermissible events, the examples given being a general election or change to interest rates, valuers must make a judgement as to whether the market at the valuation date would have anticipated a future event occurring and that future event is legitimate to take into account.

The key point that it is always necessary to consider with post-valuation date evidence is whether something has changed in the intervening period that undermines the reliability of the evidence as a measure of the value of the subject property at the valuation date. An interesting question, which the Tribunal does not consider however, is whether a transaction itself might be an “event” affecting the post-valuation date market and undermining the reliability of subsequent transactions as comparables.

The Tribunal ultimately preferred the evidence of HMRC’s expert who placed most weight on transactions that had occurred before the valuation date but used limited post-valuation date evidence in the months after the valuation date to confirm the state of the market. The Tribunal concluded that there was sufficient evidence available (seven comparable transactions) that a reliable valuation of the Property could be based on and no weight should be afforded to two of the three ‘key’ comparable transactions relied on by the appellant’s expert because these were more than 9 months after the valuation date.

There were also some additional comparables relied on in determining the value of the garage space within the Property. These included some lavish ‘add-ons’, “including valet parking, and ‘handmade peach skin vehicle covers giving further protection for your car’ (really)”.

Role of Experts

The expert valuer acting for the appellant was critical in his representations of the conduct of the expert valuer acting for HMRC, notably:

• Questioning even handedness and consistency in the selection of comparables, suggesting the expert valuer acting for HMRC’s choice of comparables was a deliberate attempt not to include post-valuation evidence;
• Raising ‘grave concerns’ as to whether HMRC’s expert valuer’s selection of evidence undermines the entirety of their evidence; and
• Accusing HMRC’s expert valuer of seeking out evidence ‘in a vain and somewhat panicked attempt to justify an unjustifiable stance…’.

Mr McCrea comments in an Afterword that these criticisms were: “…without justification and entirely unnecessary. Seldom is this tactic helpful to the decision maker, especially in the setting of an expert Tribunal.” Mr McCrea also makes reference to the RICS Practice Statement, Surveyors acting as Expert Witnesses 4^th edition (updated 6 February 2023), which states (at 17.8) that:

“Expert witnesses would not generally be expected to… include comments that are in the nature of advocacy submissions about an opposing expert’s evidence. You may find yourself at greater risk of slipping into ‘advocacy mode’ at the rebuttal stage of presentation of evidence, when the focus of your evidence shifts from explanation of your own opinion to a more critical role in dealing with the expert witness report of your counterpart.”

Expert valuers must resist the temptation to criticise their counterpart’s evidence in the manner the appellant’s expert did in this case, be careful not to succumb to the risk foreseen by the Practice Statement and remember the important distinction between their role as expert witness (identifying relevant issues and providing evidence on those issues) and the role of an advocate (applying the evidence and advancing a particular case). The Tribunal considered the appellant’s expert evidence to be the weaker for straying into ‘advocacy mode’ by criticising HMRC’s expert’s professionalism and motives in selecting evidence in the way they did.

Although not referred to in the Chifley decision, we also note that RICS published the 2^nd edition of its Professional Standard, Surveyors advising in respect of compulsory purchase and statutory compensation on 19 September 2024 (effective from 23 December 2024). It can be accessed here, which includes a section (at 8.4) on the conduct of negotiations between surveyors and the principles that should be followed.