Inheritance Tax: How Property Condition and Comparables Affect Valuation

Neutral Citation Number: [2026] UKUT 00228 (LC) Case No: LC-2025-165 IN THE UPPER TRIBUNAL (LANDS CHAMBER) IN AN APPEAL AGAINST A DETERMINATION MADE BY THE COMMISSIONERS OF HIS MAJESTY’S REVENUE AND CUSTOMS Royal Courts of Justice, Strand, London, WC2A 2LL 26 June 2026 TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007 Inheritance Tax – Leasehold value - Comparables – adjustments for disrepair, lack of outdoor space and other matters – relevance of floor space – appeal allowed BETWEEN: [APPELLANT] (THE ESTATE OF [NAME]) Appellant -and- HIS MAJESTY’S REVENUE AND CUSTOMS Respondent 47 Boscombe Road, Shepherd’s Bush, London, W12 9HT Mrs D Martin TD MRICS FAAV 26 June 2026 [NAME] of CTM Tax Litigation Limited for the appellant [NAME] , instructed by HMRC Legal, for the respondent © CROWN COPYRIGHT 2026 Introduction 1. This is an appeal against a determination of the Commissioners for His Majesty’s Revenue and Customs (“HMRC”) in respect of the leasehold value of a maisonette at 47 Boscombe Road, Shepherd’s Bush, London W12 9HT (“the property”) for inheritance tax purposes. 2. [APPELLANT] (“the appellant”) and [NAME] inherited the property on the death of their uncle on 20 April 2016, which is the valuation date. The appellant has since bought out [NAME]’s half share. 3. [NAME] MRICS of Mylako Limited provided a valuation for inheritance tax dated 23 May 2016 (“the Mylako report”) which placed a value of £515,000 on the property at the valuation date. This was the value stated in the return to HMRC. [NAME] MRICS of the Valuation Office Agency visited the property on 31 January 2018 and on 22 February 2018 wrote to Mylako reporting his opinion of value at £800,000. Negotiations took place between [NAME] MRICS of Mylako and [NAME] but no agreement was reached.

4. On 17 May 2024 HMRC wrote a pre-decision letter to the appellant, followed on 23 July 2024 by a notice of determination under section 221 of the Inheritance Tax Act 1984 (“ the 1984 Act ”) that the value of the property at the valuation date was £800,000. The appellant appealed the determination, which led to further discussions between Mylako and [NAME], but no agreement, and the determination was unaltered. The appellant then sought a review of the decision not to alter the determination. The review, dated 30 January 2025, concluded that the determination should be upheld and stated that any further appeal should be made to this Tribunal.

5. On 1 May 2025, an appeal was registered and a hearing was listed for 3 December 2025. That was vacated, to allow the parties to engage in alternative dispute resolution, and then relisted for 3 June 2026. At the hearing of the appeal the appellant was represented by [NAME] of CTM Tax Litigation Limited, who called the appellant to give evidence. The respondent was represented by [NAME] of counsel, who called [NAME] to give expert evidence.

6. It will be apparent that by the time of the hearing the parties had reviewed the matters affecting the valuation of the property exhaustively, without any change in position on either side. Whilst reserving judgment as to the weight it should be given, I allowed additional evidence to be admitted on behalf of the appellant concerning the advice on sale price that he had received in July 2018, August 2020 and August 2025, and confirmation that the property is currently under offer at £695,000. The appellant also supplied a valuation report from Mylako dated 25 March 2025 putting a value on the property at that date as if it were in the same condition as at the valuation date. I have given this no weight.

7. After the hearing, at the request of the appellant, I carried out an unaccompanied external inspection of the property, comparing its location with that of the key comparable properties cited in expert evidence. However, the valuation date was over 10 years earlier, and no part of the expert evidence concerned location, so this was simply informative.

8. The parties provided three authorities, of which two were decisions of this Tribunal in earlier appeals. I have not referred to any authorities in this decision, which is purely a determination of valuation on the evidence. Matters not in dispute 9. The basis of valuation is market value as defined in section 160 of the 1984 Act : “ Except as otherwise provided by the Act , the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; … ” 10. The property extends to 117 sq m of gross internal area, across the raised ground floor and first floor of a mid-terrace property at 47 Boscombe Road. It has no external space. At the valuation date the property provided an entrance hall, two reception rooms and a kitchen on the ground floor and three bedrooms plus bathroom/WC on the first floor. The interest to be valued is a leasehold interest for a term of 125 years from 24 June 1986 at a ground rent of £10 per annum. At the valuation date 95 years remained on the lease.

11. The property is located about half a mile from the commercial centre of Shepherd’s Bush and within half a mile of underground services at Shepherd’s Bush Station and Goldhawk Road Station. Properties on Boscombe Road comprise mainly late Victorian terraced properties of three or four storeys, many converted into flats and maisonettes. Matters in dispute 12. The dispute is entirely a valuation dispute centred on the analysis and relevance of comparable evidence. Much of the dispute arises from the way in which the condition of the property at the valuation date should be described and then considered against the comparable evidence, and how the estimated cost of refurbishment should be taken into account. Other elements of the dispute are whether the property is more valuable because it has more floor space than any of the comparable properties, and how to adjust comparable evidence for the lack of outdoor space.

13. In the Mylako report the external elements of the property (roof, guttering and paintwork) were described as appearing to be in fair condition. In early 2016 the London Borough of Hammersmith and Fulham (“LBHF”) as landlord had completed external repairs and redecoration to the property, as part of a larger scheme, for which the apportioned cost was estimated at £16,945.91 (66.7% of the share for the whole of 47 Boscombe Road).

14. Internally, the single glazed timber windows were described as being in poor condition, as were the kitchen installation, the carpeted flooring and the electrical wiring installation – which would require upgrading to meet current safety standards. The decorative condition was described as poor and it was noted that the ceiling “to the rear of the first floor” (without further detail) had been removed. The central heating system and boiler were described as in fair order, but overall the property was considered to be in a poor condition so that any incoming purchaser would be likely to carry out a full program of modernisation.

15. In his witness statement the appellant described the property as unmortgageable at the valuation date, but no other evidence has been supplied in support of that contention. He also described it as “a long way from being habitable” and likely to have been of interest only to property developers as cash buyers. In his oral evidence the appellant explained that his late uncle had lived in just part of the property prior to his death and drew attention to the photographs appended to the Mylako report. These showed extensive damp and mould in ceilings where leaks had occurred, further mould due to condensation in the kitchen and bathroom, and an overall appearance of neglect, even in the inhabited rooms. 16. [NAME] did not see the property until January 2018, by which time the appellant had completed some work to clear the property. [NAME] did not take any photographs of the property during his visit. In his report he described the property as in reasonable and sound structural condition, but the internal condition as poor and in need of repair and modernisation. He noted in addition, confirming the appellant’s evidence, that the balustrade to the staircase was damaged and in need of repair. Valuation evidence 17. [NAME] was the only expert to give evidence at the hearing. He qualified as a chartered surveyor in 1992, having joined the Valuation Office Agency as a cadet valuer in 1988. He therefore has over 37 years of experience in capital and rating valuations in London. For the last 24 years he has specialised in Inheritance Tax, Capital Gains Tax and Right to Buy valuations, mainly in west and north London.

18. The Mylako report was placed in evidence with the appellant’s witness statement. It referred to seven sales of comparable properties between April 2015 and March 2016, without any explanation of how analysis of them had given rise to the value of £515,000 placed on the property. Four of the comparable properties had no outside space, like the property, and two of those were in only fair condition.

19. In his letter to Mylako of 22 February 2018, stating his opinion of value at £800,000, [NAME] referred to five comparable sales between October 2015 and April 2016, of which only one was in the Mylako list. That was the sale of the lower ground floor flat at 46A Boscombe Road (opposite the property) which benefited from a garden. All the properties were described as in good condition and all had outdoor space.

20. In his expert report for this appeal [NAME] referred to 11 comparable sales, which included his original five, three additional sales of properties in good condition with outdoor space, and three more of the sales referred to in the Mylako report, including those in fair condition with no outside space. [NAME] analysed the sale prices on a £/sq m basis and adjusted for date of sale using the Land Registry House Price Index for flats and maisonettes in LBHF. He then made downward adjustments to the analysed prices for outdoor space at 10% for a garden and 5% for a roof terrace or for a garden without direct access from the property. An upward adjustment of 5% was made to prices of lower ground floor properties, which would be more vulnerable to break-ins. Two properties were held on long leases for which a downward adjustment of 1% was made. 21. [NAME] confirmed that he made these adjustments based on his years of experience of analysing sales evidence of similar properties. He noted that the property was unusual in being large, with three bedrooms and two reception rooms, without the benefit of outside space. He acknowledged that the percentage adjustments he made for lack of outside space could not be demonstrated by reference to comparable properties with and without such space.

22. Having made his adjustments, [NAME] took a view of the adjusted prices and concluded that a property in good modernised condition without outside space would be worth at least £8,000/sqm. He considered that a sum of £1,000/sqm should be deducted to reflect the bid of potential purchasers, who would expect to reconfigure, modernise and refurbish the property including rewiring, replacement of bathrooms, WCs and the kitchen, and internal plaster repairs and redecoration. [NAME] stated that this figure was based on his experience of negotiating values where the cost of works needed to be taken into account, but was not a direct offset of likely cost against value because often a property in poor condition will sell for more than anticipated despite requiring expensive work. Applying his reduced value of £7,000/sqm to the property size of 117 sqm [NAME] assessed a value of £819,000, which he rounded down to £800,000. During the hearing [NAME] acknowledged that the property was in “exceptionally poor condition” at the valuation date and required substantial works of repair, although he pointed out that his allowance of £117,000 (£1,000/sqm) exceeded the actual expenditure incurred subsequently by the appellant.

23. At the hearing I issued a table which I had prepared to show all 14 comparable sales referred to in the Mylako report and [NAME]’s report, together with the value positions of the two parties, sorted into ascending order of price/sqm after adjustment for date of sale. I did not include [NAME]’s subsequent adjustments so that the data could be viewed in its context. It was agreed that a sale at Davisville Road should be excluded, because it appears to have completed after the valuation date, which leaves 13 sales in the table below.

24. Apart from the sale of 46A Boscombe Road the comparable evidence is derived from surrounding roads where property types are generally similar. Neither report made any comment on adjustments which should be made on account of location and no comments arose during the hearing on this point. 25. [NAME] acknowledged that the best pieces of comparable evidence were the three sales of three bedroom properties with no outdoor space, two of them in only fair condition, provided in the Mylako report and highlighted at the top of the table. In his opinion the evidence of 95 Ormiston Grove at £7,931/sqm supported his original assessment of value for the property in good condition at £8,000/sq m and a deduction of £1,000/sqm for condition. His final figure of £6,838/sq m allowed for the property being in a worse state than those in fair condition. Submissions by the appellant 26. The appellant’s case is that the valuation of £800,000 does not reflect the severe disrepair and condition of the property at the valuation date, along with the lack of outside space. The property is larger than any of the comparables and the approach of valuing by reference to price/sqm achieved on smaller properties is flawed. The large space offered by the property would be of interest to a purchaser with a family, but the lack of outdoor space would deter them.

27. The appellant says his contention that the property value was overstated by the respondent is reinforced by the evidence of marketing advice he has received from estate agents over the years since he has owned the property. In an email dated 6 July 2018 estate agents Finlay Brewer proposed that the property could be guided at £600,000 in its present state, at £725,000 with essential refurbishment or at £850,000 with an additional bathroom and a roof terrace. An email dated 17 August 2020 from Winkworth estate agents proposed marketing the refurbished property at £775,000. After a period of letting the property was marketed on Rightmove at £800,000 in June 2025 by estate agents Kerr and Co. It did not sell and was removed from the market in September 2025. On 11 May 2026 a memorandum of sale at £695,000 was confirmed by estate agents Dexters, subject to completion of a lease extension.

28. The appellant described the property as appearing to have an impressive amount of space on first entering, until it was realised that the kitchen was small and the ground floor space could not easily be reconfigured to provide a modern open kitchen/living area. The property has now been reconfigured to provide bedrooms on the ground floor with a large kitchen/dining/living area above.

29. Refurbishment work was carried out from late 2019 through to October 2020, when the property was let. No supporting evidence was produced, but the appellant says that £113,494 was spent on works which included a new boiler, complete rewiring, new joists, new ceilings, replastering, a new kitchen, two new bathrooms, new internal and external doors, new floors and carpets, new flat roofs (over bay windows) and refurbishment of all windows. Evidence of an estimate dated 6 July 2018 from the Lady Builder amounted to £205,945 (including VAT) for the cost of full refurbishment. The appellant acknowledged that this included some white goods and so could not be compared directly with the final amount spent, but explained that he had contributed much of the non-skilled labour to complete the refurbishment, thereby keeping the final cost down. Submissions by the respondent 30. [NAME] submitted that only factors known at the valuation date should be taken into account in assessing what a hypothetical purchaser in the open market would pay at that date, and so any later evidence should be ignored. [NAME] had described the market at the valuation date as buoyant, but it will have changed over time and any later marketing advice is out of context. 31. [NAME] relied on the evidence of [NAME] and submitted that he had made generous adjustments in arriving at his value. His deduction of 10% for lack of open space was generous and his allowance of £117,000 for repair and refurbishment work exceeded the actual expenditure incurred by the appellant. There was no evidence that the property was either unmortgageable or uninhabitable at the valuation date and the Mylako report had described it as “…a thoroughly habitable and marketable unit.” Discussion 32. A number of conclusions can be drawn from the three comparable sales which it is now agreed are most relevant to the valuation of the property, although it is acknowledged by both parties that the evidence is lacking detail of the lease length and of the nature of “fair” condition. The sales are agreed to be open market evidence and, in the absence of evidence to the contrary, I assume that the prices were not affected by short lease lengths. I agree with [NAME] that, on the face of it, they appear to support his value in good condition of £8,000/sqm and his deduction of £1,000/sqm for condition.

33. All are three bedroom flats without need for adjustment for security issues. None has any outdoor space. The highest price/sqm is £7,931 for the one property in good condition, but I note that it is 79 sqm in floor area, so only two thirds of the size of the property, which could have an impact on the price/sqm. The two properties in fair condition each have the benefit of a second bathroom, which will have added some value to them. It is apparent that the property is significantly larger than the comparable properties and it is this fact which causes the appellant to question [NAME]’s valuation approach based simply on price/sqm.

34. In order to look at the comparable evidence a different way I have re-sorted the table into ascending order of price, adjusted for date of sale, as shown below. This provides an opportunity to consider the range of adjusted sale prices and what purchasers in the market at the valuation date would have been getting for their money. Unsurprisingly, the Mylako value of £515,000 sits well below the least expensive property, but it is instructive to see that [NAME]’s value sits well up in the range amongst properties in good condition with outside space. It is in this context that the value looks unreliable.

35. I consider that [NAME] was a good expert witness, with a good understanding of the market in which he was giving an opinion of value. His approach to the valuation was logical in all respects but one – he did not stand back to consider whether his final figure was appropriate and realistic when viewed in the range of market prices as at the valuation date. I consider that by adopting and maintaining a valuation based on floor area [NAME] overstated the value of the property at the valuation date and did not account for the fact that it was an outlier in the market in terms of both its size and its poor condition. The marketing advice put in evidence by the appellant is not determinative, but it does reinforce my conclusion.

36. In considering what would be a more appropriate valuation, I note that the four properties without outside space achieved the lowest prices, ranging from £626,567 to £753,132. (In case it appears there is a duplication error, 71 Cathnor Road sold for the same price as 9A Devonport Road and the house price index was identical in October 2015 and March 2016.) The two smallest properties with three bedrooms and a single bathroom lie at the bottom of the range, despite being in good condition. The adjusted prices for 61B Percy Road (£677,508) and 9A Devonport Road (£753,132) are significantly apart for two properties of apparently similar size and description. The reasons for difference may well lie in the detail of condition, or possibly lease length, which we do not have.

37. Doing the best I can with the evidence I consider that, given its very poor condition and that it has only a single bathroom, and despite offering extra space, the property would have achieved a price below that of 61B Percy Road. I determine the value at £670,000. This would have given a purchaser scope to spend at least £130,000 on refurbishment, in the expectation of adding value above that cost to achieve a potential future sale price over £800,000 for a property still limited by lack of outdoor space.

38. The appeal is therefore allowed. Mrs D Martin TD MRICS FAAV 26 June 2026 Right of appeal Any party has a right of appeal to the Court of Appeal on any point of law arising from this decision. The right of appeal may be exercised only with permission. An application for permission to appeal to the Court of Appeal must be sent or delivered to the Tribunal so that it is received within 1 month after the date on which this decision is sent to the parties (unless an application for costs is made within 14 days of the decision being sent to the parties, in which case an application for permission to appeal must be made within 1 month of the date on which the Tribunal’s decision on costs is sent to the parties). An application for permission to appeal must identify the decision of the Tribunal to which it relates, identify the alleged error or errors of law in the decision, and state the result the party making the application is seeking. If the Tribunal refuses permission to appeal a further application may then be made to the Court of Appeal for permission.