The value of development land
We have probably all had clients who, after consulting that impeccable source, 'the man in the pub', have concluded that a transfer of land to a connected party will save significant amounts of CGT or IHT if it is made before planning permission is granted. In some cases the advice that 'hope value' will need to be considered in valuing the relevant assets comes as something of a shock.
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.