A client owns a Grade 2 listed building with significant dilapidations. No statutory notices have been received yet, but a surveyor estimates the conservation deficit on the property is £2m (£1m property value against £3m dilaps estimate). Therefore, the property has a negative value. There will be no heritage exemption. Enabling development has not been applied for.
Does anyone have experience of claiming this ‘liability’ for an estate? The IHT405 doesn’t seem to cover it.
I suppose to me the question is even if technically it has a conservation deficit and hence a negative value, would someone with deep pockets and a fondness for a nice house buy it? And if so for what price (based on comparables)? People take on lovely, run down, old houses knowing they are money pits. And what would the property be worth if £3m was spent on it? Did the surveyor comment on that?
To my uneducated (in these matters) mind, the price someone would be prepared to pay would be the value for IHT. Is there a liability if the council has not yet forced the repairs and the market hasn’t been tested (although I appreciate no sale could exchange/ complete until after Probate). Presumably the estate will want to sell? Can the estate afford to apply for enabling development? Presumably this may allow a better price to be achieved but with a corresponding increase in IHT.
Sorry no firm answer. I would be interested to hear the outcome.
Hi Sara, good to hear from you and thank you for your comments. Assume this property is well underwater and a wealthy romantic would not buy it. The deficit is too significant.
Thank you also for your wishes of luck!
Philip
I am not an expert property lawyer but it was a branch of the law that I did my best to keep up with as regards the essentials in order to help my clients ask an expert the right questions. Where a listed building falls into disrepair the local planning has a number of enforcement remedies: Urgent Works. Repairs and s215 Notices. After service they can proceed quickly with a UWN and otherwise eventually pay to have the necessary works done and can recover the debt e.g. obtain a charging order and ultimately a sale or a compulsory purchase order. See for example ss47-59 Planning (Listed Buildings and Conservation Areas) Act 1990 For amateurs comme moi I recommend Historic England’s splendid guidance at https://historicengland.org.uk/images-books/publications/stoppingtherot/heag046b-stopping-the-rot/
There is no doubt that the physical condition of the property must be taken into account in the hypothetical sale at open market value. VOA IHT Manual 7.12. In SVM113050 Lord Hoffmann said in Gray “…
the hypothesis must be applied to the property as it actually existed” and HMRC say they" will continue to value each asset exactly as it existed at the valuation date and will defend that line before the Tax Tribunals as necessary". Indeed the property itself is the only element of reality in the OMV ritual dance. Of course the glaring unreality is that no one would be prepared to buy at any price! But this must be ignored Blame the judiciary not me your humble servant. See also IHTM23203.
I do not believe OMV can be less than £1 but I have personal knowledge of arm’s length transactions where the seller has paid the buyer. In a proper case an actual liability to pay would be deductible from the seller’s IHT estate so a contingent liabilty would also be, in so far as HMRC ever accept their deductibility and that depends on the facts: IHTM28070 and 28240. So if the local planning authority issues a notice, unchallenged or after appeals exhausted, the debt ceases to be contingent; only its amount is in question and an estimate can hopefully be agreed with HMRC pending final calculation.
One must not forget the HMRC position about the inability to deduct an overall deficit at one title from value at another title: IHTM28397
Finally, if conditional exemption has been claimed and granted, a failure to repair may be a breach of undertaking.
I suppose to me the question is even if technically it has a conservation deficit and hence a negative value, would someone with deep pockets and a fondness for a nice house buy it? And if so for what price (based on comparables)? People take on lovely, run down, old houses knowing they are money pits. And what would the property be worth if £3m was spent on it? Did the surveyor comment on that?
To my uneducated (in these matters) mind, the price someone would be prepared to pay would be the value for IHT. Is there a liability if the council has not yet forced the repairs and the market hasn’t been tested (although I appreciate no sale could exchange/ complete until after Probate). Presumably the estate will want to sell? Can the estate afford to apply for enabling development? Presumably this may allow a better price to be achieved but with a corresponding increase in IHT.
Sorry no firm answer. I would be interested to hear the outcome.
Mindful of those on here who practise in exotic climes I should point out that my comments on tle law of listed buildings as it applies in England. There is separate legislation in each of Wales, Scotland, and Northern Ireland/The North/The Province/ The Six Counties (to keep everyone happy).
Hello Jack,
Thank you so much for such a generous post. There is plenty to work through in your note and I anticipate your guidance will prove of considerable assistance as this case develops. Thank you again, Philip
|