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HMRC internal manual

Shares and Assets Valuation Manual

The Statutory Open Market: Case Law - Marketing and the Property

In order that the property should achieve its open market value on the day of sale, it is necessary to assume that there has been proper marketing and exposure to the market beforehand:

“The commissioners must estimate what the property would probably have fetched on that particular day if it had then been exposed for sale, no doubt after such advance publicity as would have been reasonable” (Duke of Buccleuch at 525A-B per Lord Reid, and see also Lynall v IRC [1972] AC 680at 695E per Lord Reid to the same effect).

Duke of Buccleuch v IRC [1966] 1 QB 851:

“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.”

Lord Denning MR at page 871

However, proper marketing does not mean putting the company into a different state to that in which it in fact was. See Buccleuch at 525 per Lord Reid, in particular at F-G:

“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”.

Duke of Buccleuch v IRC [1967] 1 AC 506 - ‘the property’ for valuation purposes is deemed to be the property comprised in the estate which it is proper to treat as a unit for valuation. In the view of Lord Wilberforce in that case, the problems of grouping individual items of property in units of valuation must be resolved in a common sense way.

The Buccleuch case concerned dividing the property into small units. Conversely it may be appropriate to add individual items together.

In A-G of Ceylon v Mackie [1952] 2 AER 775 (PC) - the deceased had holdings of management and preference shares which together (but not separately) carried control of the company. It was held that the executors must be supposed to take the course which brings the highest price for the combined holdings and to offer the management and preference shares together as a single lot. For Estate Duty, the Mackie principle was applied in a limited manner to property passing under a single title; but for Inheritance Tax no such limitation exists. See Dymond’s Capital Taxes Volume 2 paragraph 23.115.

It should be emphasised that these cases relate to grouping and dividing property in Inheritance Tax valuations only.

Although the context in Buccleuch was estate duty, and the particular manifestation of the question was whether there should be a subdivision of natural units in order to gain higher prices, the observations are of general import. To give a practical example, if as a matter of fact there were no forecasts available to a company as at a valuation date, there is no warrant for assuming that they would have been created by the vendor as part of the hypothetical marketing process in the run-up to that date.

  Additional Guidance: SVM150000