Taxation – Annual tax on enveloped dwellings (ATED) – Valuation – Comparables – Appellant appealing against determination of respondent commissioners as to value of property for ATED purposes – Whether post-valuation date evidence relevant to valuation – Whether adjustments to be made for time, condition and location – Whether respondents adopting correct form of indexation, to account for changes in value over time – Appeal dismissed
The appellant was a company based in the British Virgin Islands. In August 2011, it acquired a property at 12 Chester Square, Belgravia, SW1X for £9.5m. It was Grade II listed and within the Belgravia Conservation Area. It was in a prime residential neighbourhood with excellent connectivity to central London.
Chester Square was an early Victorian garden square, comprising predominantly stucco-fronted, terraced houses, the majority of which remained as single-family dwellings. The appeal property was located on the north-west side of the square, close to its junction with Eccleston Street. It was in a two-way road with residents’ parking on each side.
The appeal property comprised a mid-terraced house built over lower ground floor to fourth floor level. It had been connected to the rear mews property (part of Eaton Mews South) to form a single-family house. It comprised five bedrooms, five bathrooms (three ensuites), a sixth bedroom or gym area with shower room, plus living accommodation and outside space.
An issue arose concerning the valuation of the property on 1 April 2017. The respondent commissioners determined the value fell into the £10-20m bracket for the purposes of annual tax on enveloped dwellings (ATED) (an annual tax payable by companies that owned UK residential property worth more than £500,000).
The appellant appealed against that determination, arguing the value was £9,325,000, thus falling within the sub-£10m bracket.
Held: The appeal was dismissed.
(1) The relevant legislation governing the valuation was Part 3 of the Finance Act 2013. The value of a dwelling for the purposes of ATED was the “market value” of the property on the relevant day (section 102(1)). It was agreed that the relevant day, and thus the valuation date in this case, was 1 April 2017.
Section 98(8) of the 2013 Act provided that “market value” was to be determined as defined by section 272(1) of the Taxation of Chargeable Gains Act 1992 as: “… in relation to any assets … the price which those assets might reasonably be expected to fetch on a sale in the open market”.
(2) In determining the value of the property, events after the valuation date, which would not have been known to either the valuer or (because every valuation raised the question of what a property would have sold for) the hypothetical buyer and seller, should not be taken into account.
However, what could provide retrospective assistance was what comparable properties were selling for around, or some months after, the valuation date, especially in the case of a transaction on the subject property, or very similar properties in close proximity. In conjunction with pre-date transactions, they could help inform the valuer as to the state of the market in the months around the valuation date: Melwood Units Pty Ltd v Commissioners of Main Roads [1979] AC 426, Segama v Penny Le Roy [1984] 1 EGLR 109, Allen v Leicester City Council [2013] UKUT 22 (LC) and Castlefield Property Ltd v National Highways Ltd [2023] UKUT 217 (LC); [2023] PLSCS 168 considered.
(3) There might be a tension between those two principles, to the extent that some transactions might have been affected by impermissible events, and in that respect the valuer had to be alive to outliers or sudden changes in market levels that might have been affected by post-date events, for instance a general election or a change to interest rates.
The valuer had to make a judgment as to whether the market, at the valuation date, anticipated a future event, which would be legitimate to take into account. With the passage of time, some market expectations became reality and some did not, and it was necessary to consider with any post-valuation date evidence whether something had changed in the intervening period which undermined the reliability of the evidence as a measure of value of the subject property at the valuation date. As ever, valuation was an art.
As regards post-review transactions, the further one moved away from the valuation date the less weight should be applied to a transaction, because it became “progressively unreliable”, as in Segama. The same might be said for historic transactions, but the difference was that, while historic, they were known to the market at the valuation date, and sensible adjustments could be made on the basis of “known knowns”.
(4) In order to adjust comparable sales to their equivalent in the market conditions at the valuation date, both experts applied a form of indexation, to account for changes in value over time.
The appellant’s expert used the Land Registry’s House Price Index for terraced houses in the City of Westminster between January 2013 and December 2022. The respondent’s expert preferred to use the Savills’ Prime London Residential Statistical Supplement Index.
Both indices were perfectly respectable but the Savills index provided a more reliable guide to changes in houses in the same general price bracket as the appeal property. The general Westminster market, encompassing a wide range of property types across the borough, was at a different point in the property cycle at the valuation date. Accordingly, the Savills index would be adopted in analysing the comparable evidence.
(5) There was no dispute about the order in which adjustments to reflect physical factors should be made. The UT accepted adjustments for condition, location and lateral layout (the properties concerned had been laterally combined), in that order. It noted that, had the adjustment for condition been made last, the end result would have been different. The more adjustment that was required, the more susceptible the analysis was to error: Earl Cadogan v Faizapour and Stephenson [2010] UKUT 3 (LC) considered.
The tribunal placed some weight on the appellant’s purchase of the appeal property in August 2011 for £9,500,000, following which £500,000 was spent on refurbishment. Assuming a June 2011 exchange of contracts, the Savills index was 208.6. That would equate to £9,809,683 at the valuation date before any reflection for improvements. Indexing over such a long period was unsatisfactory, but that would also point to a value in excess of £10m at the valuation date. In all the circumstances, the market value of the appeal property at 1 April 2017 for the purposes of section 98(8) was £11,750,000.
The appeal was determined on written representations.
Eileen O’Grady, barrister
