Inheritance Tax Manual

Section 37: appeal cases

The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.

Appeal Arising from a Notice of Determination

37.1 General

S.222 IHTA 1984 provides that any appeal concerning the value of land in the United Kingdom shall be referred to the Lands Tribunal for determination. This will apply to the majority of cases in which DVs are involved although there may be circumstances in which a DV will be required to give evidence at a Special Commissioners’ hearing (see para 37.39 below). The DV’s function at such a hearing will be that of expert witness. Responsibility for advocacy lies with either the Litigation Section of HMRC(IHT) or the HMRC Solicitor although in particularly complex or important cases Counsel may be instructed.

CEO(DVS) will provide specific advice in all IHT appeals.

37.2 Notice of determination

A prerequisite to any appeal is the service of a notice of determination. In a case where valuation of land and buildings is an issue HMRC(IHT) will serve a notice of determination on the parties (s.221 IHTA 1984) once an Appeal Report has been received from the DV and there is no immediate prospect of a negotiated resolution of the matter. The parties then have 30 days within which to appeal against the determination in which case the appeal will be transmitted to the Lands Tribunal. This will be done by either the Litigation Section of HMRC(IHT) or the HMRC Solicitor.

The effect of this procedure is that in all cases it is the parties who are the appellants and not the Commissioners of Her Majesty’s Revenue and Customs.

37.3 Reference to HMRC Solicitor

On receipt of an appeal against the notice of determination, HMRC(IHT) may pass details of the case to the HMRC Solicitor who will then assume responsibility for dealing with the appeal. Communication between the HMRC Solicitor and the DV will normally be made through CEO(DVS).

37.4 Case referred back to DV via CEO(DVS)

As soon as they decide an appeal is to be listed for hearing, HMRC(IHT) will inform CEO(DVS) of the position. At this stage the DV will be informed, by CEO(DVS), that a reference is to be made to the Lands Tribunal and preparation of documentation should commence accordingly.

37.5 Appeal reports

On receipt of notification that the case is to be referred to the Lands Tribunal the DV should prepare a full appeal report (see Appendix 18 and 19 (for cases involving Agricultural Relief)) if this has not already been done at the DOA stage. If an appeal report has been prepared earlier then this need only be updated to reflect any developments over the intervening period.

Two copies of the appeal report should be forwarded to CEO(DVS) so HMRC(IHT) can be fully instructed as to the present position.

37.6-9 Reserved

Preparation of Case for the Lands Tribunal

37.10 General

The DV’s role as expert witness before the Land Tribunal requires preparation of an expert’s report, Rule 42 documents and a statement of agreed facts. Specific guidance on the preparation of these documents can be found in Appendices 21-25.

At an early stage all evidence of comparables which the expert witness might wish to quote before the Tribunal should be identified and appropriate action taken to obtain disclosure consent. Information received on PDs may need to be treated as confidential unless permission is obtained for disclosure (see CGT Manual Practice Note 4 for more information on PD disclosure). Similarly consent may be required if information held on SDLT Forms, which is not in the public domain, is necessary (similar criteria apply here as for those used in the disclosure of information on PD forms for transactions on or after 1 April 2000 – see Appendix A of PN 4 of the CGT Manual). Evidence of settlements in other taxation cases must be treated as confidential unless the taxpayer’s consent to disclosure is obtained. A standard letter is available to request disclosure of PD and SDLT Form information together with a specific form of consent (VO 1191 and VO 1193 - see Appendix 27). In the case of PDs and SDLT Forms, the EXPERT WITNESS should approach the transferees for their consent to the disclosure of the details thereon. In the event of a transferee refusing consent for disclosure, no approach should be made to the transferor but details of the PD or SDLT Form concerned and any reasons the transferee may have put forward for refusal should be passed to CEO(DVS). If the transferee does not reply to the expert witness’s letter or cannot be traced, the expert witness may approach the transferor for confirmation of the details given on the PD or SDLT Form and authority to disclose that information. However as the transferor would not have been a party to the completion of the PD or SDLT Form a copy should not be enclosed with the letter nor should the expert witness attempt to obtain authority from the transferor to produce the PD or SDLT Form to the Tribunal. The specimen letter at Appendix 27 should be adapted as necessary.

In the case of auction sales, it is sufficient for the expert witness to be able to produce a copy of the relevant auction particulars to the Tribunal together with written confirmation from the firm of auctioneers concerned that the property sold on the specified date for the sum of £x. Disclosure of PD or SDLT Form information in connection with auction sales is therefore not required.

Where settlements in comparable cases are to be used the parties concerned should be approached for authority to disclose the agreed valuation. The expert witness may give the assurance, when making an approach, that details of any consequent tax liability will not be disclosed.

It should be borne in mind that settlements in comparable cases constitute secondary evidence and should only be used where there is insufficient primary evidence, in the form of open market transaction, to support the expert witness ‘s opinion of value.

It is most important to commence the job of seeking disclosure consents as soon as possible as significant delays can occur which can have a material bearing on the preparation of the expert witness ‘s case.

37.12 Draft notice of reference

A draft notice of reference to the Lands Tribunal is normally prepared by either HMRC(IHT) or the HMRC Solicitor. A copy of the draft will be passed through CEO(DVS) to the expert witness inviting comments.

37.13 Rule 42 documents

HMRC(IHT) or the HMRC Solicitor will not normally make a formal reference to the Lands Tribunal until CEO(DVS) has indicated that the expert witness is ready to produce draft documents; unless the parties insist that an early reference be made. It is however important that the expert witness prepares Rule 42 documents without delay as, once a reference has been made, the Registrar can at any time require the parties to submit their Rule 42 documents within 28 days.

Guidance on the preparation of Rule 42 documents can be found in Appendix 25.

37.14 Expert’s report

The expert’s report (formally known as the proof of evidence) is not strictly a “Rule 42 document” but following the Lands Tribunal’s Practice Direction No. 14 of 2006 the Registrar will normally require disclosure of the substance of an expert witness’s evidence at the same time as Rule 42 documents are submitted. For all practical purposes therefore the expert’s report should be prepared alongside and to the same timescale as the Rule 42 documents. Guidance on the preparation of an expert’s report and notes for the advocate can be found at Appendix 24.

37.15 Hindsight evidence

When selecting evidence in support of a valuation the use of hindsight should be avoided as far as possible. A valuation falls to be made at a particular date based upon such knowledge as would then have been available to, and taking into account such matters as could then reasonably have been foreseen by, a prudent purchaser. Hindsight evidence may be useful to confirm what might reasonably have been expected anyway but it should not be relied upon as primary evidence (see section 7 para 7.15 and section 27 para 27.31 for further guidance).

37.16 Statement of agreed facts

At the same time as preparing the case, the expert witness should give consideration to the items which should be included in a statement of agreed facts - see Appendix 23. Where the taxpayer is also using the services of an expert valuer, the Tribunal will normally require the two experts to meet in order to agree any relevant plans, photographs etc, to identify the issues in the proceedings and, where possible, to reach agreement on an issue. Every effort should be made to agree the details of any evidence which constitutes hearsay evidence in order to avoid the potential difficulties in establishing such evidence before the Tribunal in the absence of such agreement (see para 37.18 below).

37.17 Case conference

Once the expert witness has produced draft documents these should be forwarded to reach CEO(DVS). Arrangements will then normally be made for a case conference to be held which will be attended by the expert witness, CEO(DVS) and HMRC(IHT) and/or the HMRC Solicitor (if appropriate).

The object of the case conference is to review the whole case and the expert witness’s report and documents in particular. HMRC(IHT) and/or the HMRC Solicitor will advise on any particular points of difficulty.

37.18 Hearsay evidence

At the conference the expert witness should be able to indicate any items of evidence which are technically hearsay. These will include evidence of transactions in which the expert witness was not personally involved, i.e. most PDs and SDLT forms and other reference to unpublished transactions as distinct from published auction results. HMRC(IHT) and/or the HMRC Solicitor should seek to obtain the parties’ agreement to the veracity of such transactions at the same time as agreement is sought on the schedule of agreed facts. If agreement is not obtained HMRC(IHT) and/or the HMRC Solicitor will take steps to meet the requirements of the Civil Evidence Act 1995 governing the introduction of hearsay evidence.

37.19 Action following case conference

In the light of decisions taken at the case conference the expert witness’s report and documents should be amended as necessary so that final versions can be available at short notice following a Rule 42 direction after the reference to the Lands Tribunal has been made.

37.20 Reference to the Lands Tribunal

The reference will be made to the Lands Tribunal by HMRC(IHT) or the HMRC Solicitor. This will usually take the form of the lodging of a formal notice of reference together with copy of the notice of determination.

37.21 Rule 42 notice

Rule 42 of the Land Tribunal Rules 1996 provides that where more than one party intends to call an expert witness, all parties must within 28 days of being requested to do so by the Registrar, provide copies of each of certain documents to the Tribunal. See Appendix 25 for details of the documents referred to.

Sufficient copies have to be provided to enable the Registrar to retain a copy of each and pass on the remainder to the other parties.

The Rule notice will be issued to HMRC(IHT) or the HMRC Solicitor and the expert witness will be informed immediately.

37.22 Action on receipt of parties’ documents

When the parties Rule 42 documents are received they should be studied carefully. All the properties which are quoted as comparables should be inspected (externally at least) and every effort should be made to verify any factual information contained in the documents. If there are any discrepancies of a factual nature the expert witness should, with HMRC(IHT) or the HMRC Solicitor consent, seek to resolve these with the parties by way of some reference in the statement of agreed facts.

Analysis of the Rule 42 documents and (assuming Practice Direction No.14 of 2006 has been followed) expert’s report will be crucial to the identification of the strengths and weaknesses of the parties’ case and detailed notes should be prepared in that respect for the benefit of HMRC(IHT) or the HMRC Solicitor

37.23-24 Reserved

Lands Tribunal Hearing

37.25 General

It is up to the Tribunal to determine the nature of the hearing (if indeed there is to be one).

Practice Direction No. 3 of 2006 requires the Tribunal to assign each case to one of four procedures:

  1. the standard procedure – this is the traditional procedure. The case management will be in the hands of the Registrar, who will give directions and allocate the case to a specific Member, who will preside over a full hearing, with both sides being represented by an advocate, who can call various witnesses to give evidence;

  2. the special procedure – this procedure will be used in more complex cases; whereby a case will be allocated to a specific Member (or Members), who will order a pre-trial review to be held under Rule 39, prior to the full hearing;

  3. the simplified procedure – this procedure is detailed in Rule 28 and will be used where no substantial issue of law or valuation practice, or substantial conflict of fact, is likely to arise and all parties consent to its use. The objective is to move to a hearing as quickly as possible, with a minimum of formality and cost. The hearing is informal and strict rules of evidence do not apply;

  4. the written representations procedure – this procedure is detailed in Rule 27, whereby the Tribunal, with the consent of the parties to the proceedings, order that the proceedings be determined without an oral hearing.

37.26 Preliminary hearing (Rule 39)

Where application has been made by either party for a pre-trial review, under Rule 39, or for a Preliminary Hearing, under Rule 43, HMRC(IHT) or the HMRC Solicitor may request the expert witness’s presence. The expert witness will not be required to give expert evidence at this stage, but may be asked to advise HMRC(IHT) or the HMRC Solicitor.

37.27 Notice of hearing

At least 14 days notice will be given of the date(s) of any proposed hearing, but rather more notice than that is usually given. The expert witness should ensure that HMRC(IHT) or the HMRC Solicitor is provided with details of dates on which other commitments mean attendance will not be possible.

37.28 Reserved

37.29 Costs

Costs will be requested where appropriate by HMRC(IHT) or the HMRC Solicitor when the decision is read, but to allow the HMRC(IHT) and/or the HMRC Solicitor sufficient time to consider costs the expert witness’s chronological diary (see para 37.35 below) should be forwarded to CEO(DVS) as soon as possible after the hearing.

37.30 Decision

The decision will normally be given in writing and will normally be in two stages: the preliminary decision, which will invite representations to be made regarding costs (where appropriate); and the full decision which will contain the Tribunal’s decisions regarding costs. A decision may also be given orally, where the Tribunal is satisfied that this would not result in any injustice or inconvenience to the parties. In these circumstances the reading of the decision will be attended by HMRC(IHT) and/or the HMRC Solicitor and a representative from CEO(DVS). Copies of the decision will be forwarded to the expert witness as soon as they are available.

37.31 Appeal

The decision of the Lands Tribunal is final as to matters of fact or value. An appeal lies on a point of law only, direct to the Court of Appeal with the normal rights of appeal by leave to the House of Lords. The decision as to whether to pursue an appeal in respect of any particular case will be made centrally in consultation with the HMRC Solicitor.

37.32-34 Reserved

General Matters

37.35 Record of time spent and other costs

Once the DV has been notified an appeal is to be made, the expert witness must start recording all time spent by all staff on the preparation of the case and all other costs incurred.

37.36 Negotiations

Once an appeal has been made the expert witness should not pursue negotiations without the HMRC(IHT)’s and/or the HMRC Solicitor’s knowledge and no agreement should be reached without the approval of HMRC(IHT) and/or the HMRC Solicitor.

37.37 Inspection

In the event of the expert witness wishing to re-inspect the appeal property after the appeal has been lodged with the Lands Tribunal, guidance should be sought from CEO(DVS).

37.38 Use of “without prejudice” offers

It may be that in order to explore the possibility of disposing of the case prior to the hearing the making of a formal “without prejudice” or “Calderbank” offer would be appropriate. Any such offer will always be made by HMRC(IHT) or the HMRC Solicitor and will reserve the right, in the event of the offer not being acceptable, to bring it to the notice of the Tribunal on the issue of costs. HMRC(IHT) and/or the HMRC Solicitor will always consult with CEO(DVS) and the expert witness before making any such offer.

Should such an offer, or counter-offer, be made to the expert witness by the parties, subsequent to the Lands Tribunal reference, this should be made known immediately to HMRC(IHT) and/or the HMRC Solicitor (via CEO(DVS)) together with the views of the expert witness thereon. Pending instructions the parties should merely be advised that the matter is receiving consideration.

37.39 Appeals to the Special Commissioners

In the event of a DV being required to give evidence to the Special Commissioners in an Inheritance Tax appeal, ad hoc instructions will be provided by CEO(DVS). Background notes on appeals to the Special Commissioners can be found in Appendix 22.

37.40 Case registration

Once the DV has been advised that an appeal is to be made, the case type should immediately be changed to type 186 (unless it is a case, involving Agricultural Relief, which has already been registered as type 186).

Procedures in Scotland

Variations in procedures

Although the general principles and procedures set out above will apply to appeal casework in Scotland, there are a number of differences in detail arising out of Scottish law and practice.

Expert’s Report (see 37.14)

In Scotland this is known as a Precognition and references throughout the section Expert Report should be read accordingly. The provision regarding notes for the guidance of the advocate does not apply in Scotland.

Statement of Agreed Facts (see 37.16)

This procedure does not apply in Scotland where the Lands Tribunal proceeds by way of written pleadings from which it may well be apparent whether any facts are in dispute and what issues are to be determined. If necessary a Joint Minute of Admissions may be entered into by the parties but this would be done only a short time before the hearing, with the initiative being taken by HMRC and/or the HMRC Solicitor.

Costs (see 37.29)

In Scotland these are called “expenses”. Other references to costs should be read accordingly.

Appeals (see 37.31)

An appeal in Scotland is to the Inner House of the Court of Session and from there to the House of Lords.

The Lands Tribunal in Scotland has a wide discretion to regulate its procedures as it thinks fit. Normally after the parties have lodged their pleadings and a period of adjustment has been allowed, the Tribunal will issue a decision “closing the Record” (i.e. declaring the proceedings to be in their final form), appointing the date for the hearing and ordering that documents be lodged. The practice is to send to the other side a copy of the list of comparables and a copy set of productions at the same time as these are lodged with the Tribunal rather than for the Tribunal to pass them to the other party.

Precognitions are normally exchanged prior to the hearing although it may exceptionally be done by prior agreement between the parties. Accordingly the parties cannot expect to see the other side’s precognition prior to the hearing.

37.46-99 Reserved