Duke of Buccleuch v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DANCKWERTS,LORD JUSTICE WINN,THE MASTER OF THE ROLLS |
| Judgment Date | 23 July 1965 |
| Judgment citation (vLex) | [1965] EWCA Civ J0723-3 |
| Date | 23 July 1965 |
| Court | Court of Appeal |
[1965] EWCA Civ J0723-3
In The Supreme Court of Judicature
Court of Appeal
D. 8.
From the lands Tribunal
The Master of the Rolls
(Lord Denning)
Lord Justice Danckwerts and
Lord Justice Winn
MR, R. E. MEGARRY, Q. C, and MR W. J. GLOVER (instructed by Messrs Currey & Co.) appeared as Counsel for the Appellants.
SIR EDWARD MILNER HOLLAND, Q. C., MR W. L. ROOTS, Q. C., MR J. RAYMOND PHILLIPS and MR J. P. WARNER (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Respondents.
THE MASTER 0F THE problem in this case is how to ascertain the value of the estates of the 10th Duke of Devonshire died on the 26th November, 1950. His estates were vested in the Chatsworth Estates Co. but they are to be valued as if he owned them and they passed on his death. Estate duty is payable on the principal value of the estate in accordance with the provisions of Section 7(5) of the Finance Act 1894, which says that "the principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased".
Now the Duke, or rather the Chatsworth Estates Co., had large estates in Derbyshire, Yorkshire and Sussex. The English estates came to some 186 square miles. They are worth something in the region of £3, 000, 000, But a problem has arisen as to how their value is to be assessed. One of the estates, the Hardwick Estate, was taken before the lands Tribunal as a typical example. It contained over 20, 000 acres. It was principally farms with farm buildings, but there were smallholdings, allotments, gardens, agricultural land, woodlands, residential property, sporting rights, ground rents, licensed premises, leases of collieries and quarries and also the land on which the Staveley Iron Works stand. It seems that the best way of selling it so as to get the best price over a period would be to divide it up into some 532 separate units and then sell those units separately over a period of time. It might take several years to dispose of them each at a separate price. The value on that basis of the 532 units would be £868, 129. out of those 532 units there were 486 units which were a close compact whole. They could be regarded, so to speak, as within a ring fence and could be sold as one whole. The remaining 46 units were separate and could be "hived off". They were more scattered, away from the ring fence and outside it. If those 46 units were sold separately, each as a separate unit, they would fetch a sum of £195, 671. The remaining 486 units within the ring fence, if they were sold separately, each as a separate unit, over a period of time, would fetch £672, 458£ It might take seven years to sell them each separately; for they would have to be arranged in separate lots; and there would have to be negotiations with tenant farmers', prospective purchasers of residential property, and the like. If the 486 units were not sold separately but as one compact whole within the ring fence, they could be sold within one year to one person. The only person who would buy them in this way would be an investor who was buying them to keep as an investment, looking for a return on his money; or a speculator buying them to resell. Such a person would not pay the £672, 458 which I have mentioned: he would pay, it is said, 20 per cent, less and bring it down to £537, 966. In short, if sold within one year as a whole compact unit, the 486 units would only fetch £537, 966, If sold within seven years as 486 separate units, they would fetch £672, 458. The question is: which of those two figures is the correct figure to take for estate duty purposes?The Lands Tribunal held that the higher figure was the proper one. They thought it should be assumed that this whole estate was divided up into 532 units and each sold as a -separate unit. Just as the 46 units were assessed separately, so should the 486 units.
Having thus decided on the assessment of the Hardwick Estate, the lands Tribunal applied it to the whole of the estates, on this basis they found that the total value of the properties in England was £3, 176, 646. But they say that if they are wrong in law and that the alternative basis, the compact unit basis, if may so call it, should be adopted, then the value should be £2, 743, 760.
It all depends on those few words in Section 7(5) which I have mentioned. After the discussion before us, it seems to me that the assessment should be made on this footing:
(1) You are to envisage a hypothetical sale "at the time of the death of the deceased". That means what it says.
It does not mean 12 months after the death or seven years after the death. It means at the time of the death. For instance, in the case of shares which may change much in value from one to the next, it is a hypothetical sale at the date of death In the case of land which does not change in value so much, it is still the value at the time of the death and not the value 12 months or more later. In these days of inflation, if the value went up during the 12 months, the owner would benefit considerably from the value being taken at the time of the death.
(2) You are to estimate on this hypothetical sale the price which the properties "would fetch". That moans the price which a purchaser would pay and not the amount which the seller would receive. When I say:" This property would fetch £10, 000 if sold in the open market", I mean that is the gross price which a purchaser would pay: and not the net amount which the seller would receive after deducting the agent's commission and so forth.
(3) You are to envisage a hypothetical sale "in the open market", not in a restricted market. It may be that the property is, for some reason or another, unsaleable by the vendor himself, or is subject to restrictions on sale by him which make it impossible for him to realise it in the open market but only in a restricted market. In such a case again you ask what price the purchaser would pay for the property, remembering that it would be valuable in his hands, even though he would be subject to restrictions if he wished to dispose of it. That is shown by Re Cassel, 1927, 2 Chancery, p. 275, by He Aschrott in 1927, 1 Chancery, p. 313, and by the Crossman case in 1937 Appeal Cases, p. 26.
(4) Here we come to the real point in this case — 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. The object is to get the value at the time, of death and not at any other time; and you can only do that by assuming that all preliminary arrangements have been made beforehand.
(5) You must envisage that the preliminary arrangements have been made so that the property can be sold "in such a manner and subject to such conditions as might reasonably he calculated to obtain for the vendor the best price for the property". I have taken that phrase from the Judgment of Mr Justice Sankey in the Ellesmere case in 1919, 119 Law Times, p. 568, at p. 573.
Applying those principles here, it seems to me the hypothetical sale which we must envisage is that which the Lands Tribunal envisaged, namely, the Hardwick Estate divided up into 532 units and those units sold, each as a separate unit, at the time of death and not as one whole. It may be, of course, that if you did put those 532 units on the market all at the date of death, it might amount to something in the nature of flooding the market"; just as would happen if you had a big block of shares and put them all on the market at the same time, section 60(2) of the Finance Act 1910 covers that situation. It says in terms that when you are applying Section 7(5), you shall not make any reduction on account of the estimate being made onthe assumption that the whole property is to be placed on the market at one and the same tine. That applies here. No reduction is to be made because you envisage all the 532 units being sold at the time of death. It seems to me that just as the 46 outlying units which were "hived off" were assessed separately, so-also the whole balance of 486 units must be assessed separately each as a separate unit at the time of death. The decision in the Ellesmere case has stood for at least 45 years and I would not think it right myself to depart from it now.
I think that the Lands Tribunal directed themselves properly. They came to no error of law in their decision, and I would therefore dismiss the appeal.
I agree. Perhaps I may be permitted to read the one sentence in Section 7(5) of the Finance Act 1894 upon which the matter depends: "The principal value of any property shall be estimated to be the price which in the opinion of the Commissioners such...
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