Valuing Land for Probate When It Might Get Planning: Hope Value and HMRC

At its open market value on the day of death, by the same test that applies to every other asset in the estate. Section 160 of the Inheritance Tax Act 1984 defines value as the price the property might reasonably be expected to fetch if sold in the open market at that time, and adds that the price is not to be assumed lower just because the whole property is put on the market at once. There is no separate rule for land with development potential: the question is what a buyer would have paid on that day, knowing what could be known then.

Surveyors call this the hypothetical sale. Nobody actually sells the land; the valuer imagines a sale on the date of death and asks what price it would have reached. The Valuation Office Agency, the part of HMRC that values land and buildings for tax, sets out the assumptions in its own inheritance tax manual. Its section on market value says that in the hypothetical sale neither the vendor nor the purchaser is under any compulsion to buy or sell.

The extra a buyer would pay above farming value for the chance of planning is called hope value. What it is, and what makes it rise, is explained in our guide to how the price for your land is worked out. This page follows that figure through an estate: how it is evidenced, checked, corrected and carried forward into Capital Gains Tax.

Yes, where a buyer on the day of death would have paid for the prospect. Section 160 asks what the land would fetch, and a buyer's view of its planning chances is part of what it would fetch, whether or not an application had ever been made. HMRC's own form for land in an estate builds this in. Schedule IHT405, the part of the inheritance tax account for houses, land and buildings, asks for the open market value at the date of death of each property and, at box 8, for any special factors that affect it, naming development potential as an example. It also asks for a copy of any planning approval notice where one applies.

In words rather than numbers, a probate valuer judges hope value from the planning evidence as it stood on the date of death. For a field near a settlement that usually means five kinds of fact:

• The local plan. Whether the land sat inside or next to a settlement boundary, whether the plan allocated it for homes, and whether a new plan was being prepared.
• The council's land assessments. Whether the land had been put forward in a call for sites, and how the council's land availability assessment recorded it.
• The planning history. Any application, refusal or appeal on the land, or on land next to it.
• Interest from the market. Letters from land buyers, and any option or other agreement already granted over the land, which a valuer weighs as evidence of what developers saw in it.
• The physical facts. Access to a public road, flood risk, slope, trees, protected landscapes and anything else a buyer would discover and price in.

The weight each fact carries is a matter of judgement, which is why the reasoning in the report matters as much as the figure. A field with no road access, or far from any settlement, may have no hope value at all, and a valuation that says so, with reasons, is just as proper.

Hope value matters for inheritance tax mainly because of the farm reliefs. Our guide to inherited farmland explains how agricultural property relief and business property relief treat the part of a value that comes from a planning prospect, and our page on the 2026 inheritance tax changes for farmland covers the allowance that applies to deaths from 6 April 2026.

A valuation by a chartered surveyor working to the standards of the Royal Institution of Chartered Surveyors, known as the Red Book. RICS publishes a UK national supplement to those standards, and the edition dated October 2023 takes effect from 1 May 2024 for every valuation whose valuation date is on or after that day. Members who undertake valuations must comply with Red Book Global Standards and with UK law.

The supplement has a section for tax work, UK VPGA 15, headed valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, the Annual Tax on Enveloped Dwellings and Residential Property Developer Tax, with parts on the application of statute, the basis of value and methods of valuation. The supplement also states that where national legal requirements conflict with it, those national legal requirements take precedence and must be applied. For inheritance tax, that requirement is the section 160 price.

The IHT405 asks executors to enclose a copy of any professional valuation, and if the deceased let the land, a copy of the lease or similar agreement. A valuation report that will stand up to a check by the Valuation Office Agency usually records the following about the land:

• The valuation date as the date of death, and the basis as open market value under section 160 of the Inheritance Tax Act 1984.
• Each parcel identified by its HM Land Registry title and a plan, with its area.
• Any tenancy, grazing licence or other occupation on the date of death, and its terms.
• The planning position on that date: plan policies, council land assessments, and applications and refusals on or near the land.
• The constraints a buyer would see: access, flooding, landscape and heritage designations, ground and slope.
• Where the farm reliefs are claimed, the value as farmland and the open market value as separate figures.
• The evidence relied on, such as comparable sales, and the reasoning behind any hope value, or behind finding none.

1. The account. Where an estate needs a full account, the executors send form IHT400 with its schedules. Land goes on schedule IHT405, which asks for each property's open market value at the date of death, the relief deducted at 100% or 50%, details of any letting and a copy of any professional valuation.
2. Sales are flagged from the start. Box 11 of the IHT405 asks whether any of the properties has been sold, or is intended to be sold, within 12 months of the date of death, and asks for the asking price or agreed sale price.
3. The valuer's check. Land values can be referred to the Valuation Office Agency. Its manual tells its caseworkers to treat a later sale of the same land as evidence, and to look at how that sale came about.
4. Agreement, or a tribunal. A value that cannot be agreed can be decided by the Upper Tribunal (Lands Chamber), where the Thomas case below was heard.

Where tax has been paid on an account and accepted, section 240 normally gives HMRC four years to bring proceedings for more, counted from the later of two dates: when the payment was made and accepted, and when the tax fell due. Where tax on land is paid by instalments, both dates run from the last instalment. The limit becomes six years where the loss of tax was brought about carelessly, and 20 years where it was deliberate.

When No Tax Turns on the Value

Where land passes to a spouse or civil partner, or the reliefs cover it, no inheritance tax may turn on its value. HMRC's Capital Gains Manual says that simply providing a value to HMRC does not mean it has been agreed, and that such a value may not be considered in any detail, or at all. It has not been 'ascertained', which matters when the land is sold.

The sale price becomes evidence of what the land was worth at the death, but it does not automatically become the probate value. HMRC's valuers start from it, then adjust for the time that has passed, the way the land was sold and anything that changed in between, including its planning status.

• Hindsight is limited. Later events that affect market conditions, such as regulatory changes or an economic crisis, are disregarded.
• Later evidence still counts. It can be relied on, but carries less weight the further it is from the valuation date, and must be adjusted for changes in market values.
• The sale itself is tested. Caseworkers are told to check the sale was at arm's length, whether the property was appropriately exposed for sale or sold privately, whether the marketing period suited the asset, and the number and level of other unsuccessful bids.
• Changes are stripped out. The sale price is adjusted for changes in the physical condition of the property or its planning status since the valuation date.
• A sale of the land itself carries great weight. The manual records that in the Wilcon Homes case a later sale of the subject land was treated as primary evidence, though comparable evidence could displace it.

For a family, this cuts two ways. A field that gained an allocation or a planning permission after the death is not valued at the death as if it already had one; the valuer works back from the later price and takes out what the change in planning status added. A field sold within months, after open marketing, with no change in its planning position, is close to the best evidence there can be of its value on the day. Both points come from the Agency's section on the revenue basis of market value, paragraph 7.15.

The Thomas Case: Land Sold Privately to a Family Company

The Upper Tribunal (Lands Chamber) decision in The Estate of Douglas Charles Thomas v HMRC, dated 10 January 2020, shows how these rules work on real land. Mr Thomas died on 9 April 2008. His estate included 8.08 acres of sloping pasture at Pontyates in Carmarthenshire, zoned for homes in the development plan. In April 2012 the executors sold it to a company owned by his daughter and son-in-law, and the decision records that the land had not previously been offered on the open market.

The appeal concerned relief for land sold by an estate. Under section 190 of the Inheritance Tax Act 1984, the sale price used is the price paid or, if greater, the best consideration reasonably obtainable, and HMRC said the family sale fell short of that. The tribunal valued the land as if it had been openly exposed to the market, and reached a figure of its own, between the sale price and the figure HMRC had put forward, allowing the appeal in part. Three parts of its reasoning are useful to any family:

• A private sale is tested against the open market. A price agreed within the family was not accepted simply because it was the price paid.
• Earlier options are evidence, but weighed with care. Options granted over the land in 2006 and 2008, the second renewed in 2009, were never exercised. The tribunal took them to show developer interest, and also that a developer had not been prepared to pay the reserved amounts, even in a better market.
• Simple calculations carry little weight. The tribunal placed very little weight on the basic residual valuations both sides produced, preferring the comparable sales most like the land, adjusted for their better locations and for the slope of the appeal land.

It lets the executors replace the probate value of land with the price the estate actually sold it for, where the sale takes place within three years of the death, or within four years where the sale is at a loss. The relief is in sections 190 to 198 of the Inheritance Tax Act 1984, and it is a claim, not an automatic adjustment. Its rules are tight:

The all-sales rule is the one families most easily miss. An estate that sells two fields within three years, one below its probate value and one above, cannot claim for the first and leave out the second: both go in. Only a fourth-year sale at a higher price is left out.

What the Relief Does to Capital Gains Tax

HMRC's Capital Gains Manual explains that where the relief applies, the base cost for Capital Gains Tax is the sale price, so the sale should show only a small loss equal to the incidental costs of selling. The same page notes that a claim may substitute a higher sale price where reliefs mean no additional inheritance tax is payable, but that, following the Stonor case, no claim can be made if there is no inheritance tax liability on the asset at all.

It becomes the starting figure. Section 274 of the Taxation of Chargeable Gains Act 1992 says that where inheritance tax is chargeable on a death and the value of an asset in the estate has been ascertained for that tax, the value so ascertained is taken for Capital Gains Tax as the asset's market value at the date of death. Our guide to tax when selling land for development sets out the rates and a worked example of the gain.

Whether the value was ascertained is what decides how fixed the figure is:

The middle row is why the report written at the death still matters years later: when HMRC first examines the value on a sale, it is the family's main evidence.

GOV.UK gives the standard inheritance tax rate as 40%, charged only on the part of an estate above the £325,000 threshold. Where the land is fully covered by reliefs or passes to a spouse, a change in its value changes no inheritance tax at all, which is exactly where HMRC's Capital Gains Manual is alert to inflated values. The arithmetic is simple:

The figure that holds up from both directions is one a valuer can defend against the planning facts and market evidence of the day.

HMRC can ask for the extra tax, and if the mistake was careless or deliberate, charge a penalty on top. Penalties for errors are set by Schedule 24 to the Finance Act 2007, whose table of documents includes an inheritance tax account delivered under section 216 or 217 of the 1984 Act, and statements made in connection with a deduction, exemption or relief. A penalty can be charged where the document contains an inaccuracy that leads to an understatement of tax, and the inaccuracy was careless or deliberate.

• Careless means the inaccuracy was due to a failure to take reasonable care (paragraph 3).
• A later discovery counts. An inaccuracy that was innocent when the account was sent is treated as careless if the person later discovers it and does not take reasonable steps to tell HMRC (paragraph 3).
• The penalty is a share of the extra tax. It is measured against the potential lost revenue, the additional tax due as a result of correcting the inaccuracy (paragraph 5).
• The rate depends on behaviour. For an error about land in the UK, which falls in the first of the Schedule's three categories (higher rates apply to some offshore matters), the penalty is 30% of the potential lost revenue for careless action, 70% for deliberate but not concealed action and 100% for deliberate and concealed action (paragraphs 4 and 4A).
• Telling HMRC reduces it. HMRC must reduce the standard percentage to reflect the quality of the disclosure. For a careless error, the 30% can come down to 15% where the disclosure was prompted by HMRC, and to nothing where it was unprompted (paragraph 10).

The Schedule does not define reasonable care for a valuation of land, and every case turns on its facts. What its shape rewards is plain: a qualified valuer, given the planning facts the family knew, working to the section 160 test, and prompt word to HMRC if something later shows the figure was wrong. Carelessness also stretches HMRC's time limit under section 240 from four years to six.

Alongside it, without changing it. The probate value is fixed at the death by the section 160 test. An option is an agreement made afterwards, by the executors or by the family once the land has passed to them, and our guide to probate and selling land explains who can sign and when.

Under our option agreement, the price is agreed at the start, written down as a figure, and set above what the land is worth today in its current use. We pay for and run all the planning work at our own cost and risk, the family keeps using the land until completion, and our agreements continue while any planning application or appeal is being decided. If permission is granted, we complete the purchase and the agreed price is paid on completion, with milestones set out in the agreement. If it is not, the land stays with the family and nothing is owed. We contribute to the fees of the family's own solicitor and land agent, so it costs you nothing to get it done properly, and we do not contact the council, your neighbours or anyone else about your land without your agreement.

Two tax points sit next to that:

• The date of a sale for loss on sale of land relief is the date of the contract. Section 198 takes the date the contract to sell is entered into. Only where the sale results from an option granted not more than six months earlier does it go back to the date of the grant. A sale under an option exercised once planning has been secured may therefore fall well after the three-year and four-year windows.
• The base cost does not move. Whenever the sale happens, the starting figure for Capital Gains Tax is the value at death under section 274, unless a loss on sale claim has replaced it with the sale price.

If you would like to know whether inherited land has a realistic planning case, a free desktop review of your land is the simplest place to start, and it can be done while the estate is still being administered.