Valuing development land for probate: Hope value and other complications

Valuing development land for probate: Hope value and other complications

Land held within an estate rarely comes with a simple, obvious price tag. Where a field, paddock or yard might one day support housing or commercial use, its true worth for probate depends on judgements that go well beyond a straightforward comparison with recent sales. Executors who overlook this risk submitting a figure to HMRC that undervalues the estate, which can expose them personally to challenge later on. 

Understanding hope value, and the other complications involved in valuing development land, is essential for anyone administering an estate that includes land with development potential.

Why is development land difficult to value for probate?

A house on a residential street usually has a run of recent, comparable sales nearby to guide its value. Development land rarely offers the same certainty. Two neighbouring fields can carry very different values depending on access, planning history, and the appetite of developers working in that area at the time.

Probate valuations must reflect the value of an asset at the date of death, not at some later point when a sale is eventually agreed. For land with development potential, that means forming a considered view of what a hypothetical purchaser would have paid on that date, taking account of planning prospects that may not be resolved for years.

Getting this wrong is easy to do. A valuer without land experience may default to agricultural or existing use figures, missing the additional value a developer would be willing to pay for the chance of a future planning consent. 

What is hope value, and why does it matter for probate?

Hope value is the additional amount a buyer would pay for land because of the prospect that it may, at some point, secure planning permission for a more valuable use, even though no such permission exists yet. It reflects potential rather than certainty, but that potential still has to be priced.

Under the Inheritance Tax Act 1984, an asset must be valued at the price it would achieve if sold on the open market at the date of death. If a hypothetical purchaser would factor in the chance of future residential or commercial development, HMRC expects that hope value to be reflected in the figure submitted, even for a field with no planning application ever made against it.

Assessing hope value calls for judgement grounded in evidence. A surveyor will look at the site's allocation, or lack of one, within the local plan, its planning history, nearby precedent, and the level of interest shown by developers and land promoters in the area. 

Sites close to settlement boundaries or included in a council's emerging plan will usually carry meaningfully more hope value than land in open countryside with no policy support.

How is development land value per acre calculated?

Clients often ask for a simple figure for development land value per acre, but no single number applies across a region, let alone the country. The value of an acre depends on a combination of factors that need to be assessed together rather than in isolation.

• Location and access, including proximity to existing settlements, roads and infrastructure.
• Planning status, ranging from no policy support through to an allocated site with an emerging or adopted permission.
• Site conditions, such as contamination, flood risk, ground stability and the presence of protected species or habitats.
• Local market demand from housebuilders, commercial developers and land promoters active in the area.
• Achievable density and the mix of uses a scheme could realistically deliver.

Surveyors typically work back from the residual land value method, starting with the gross development value of a completed scheme and deducting build costs, professional fees, finance and developer profit to arrive at what remains for the land. 

This produces a far more reliable figure than applying a flat rate per acre, particularly where supporting documents such as topographical surveys or planning correspondence are available to inform the assessment.

What is the development value of land, and how does it differ from existing use value?

Existing use value reflects what land is worth for its current purpose, such as agricultural or amenity use, with no allowance for future development. The development value of land, by contrast, reflects what it could be worth if developed for a higher value use, whether that potential is immediate or some years away.

RICS professional standards require a valuer to consider the highest and best use of a site, not simply its current use, when forming a Red Book opinion. For probate purposes, this means a surveyor must weigh existing use value against development value, and against hope value where full planning certainty does not yet exist, then reach a single supportable figure for the estate.

Getting the balance right matters. Overstating development potential can leave an estate facing an inflated tax bill it cannot recover if the land never gets consent. Understating it risks an incorrect probate valuation being challenged once HMRC or the beneficiaries take a closer look, particularly if the land is sold for a materially higher sum soon after the grant of probate.

What happens if there is an incorrect probate valuation?

HMRC has the right to refer any probate valuation it considers questionable to its District Valuer Services for review. Development land, given the judgement involved in assessing hope value, is one of the asset types most likely to attract that scrutiny.

Where an incorrect probate valuation is identified, the consequences can be significant.

• Additional Inheritance Tax becomes payable on the difference, along with interest backdated to the original filing date.
• HMRC can impose financial penalties where it considers the original figure was submitted without reasonable care.
• The grant of probate and the distribution of the estate can be delayed while the dispute is resolved.
• Beneficiaries may fall into disagreement if the land is later sold for considerably more than the figure declared.

This risk is particularly acute where land is sold at auction shortly after the grant of probate. A strong sale price achieved through competitive bidding can prompt HMRC to ask why the original valuation was so much lower, even where that valuation was carried out properly at the time.

Why does a RICS probate valuation matter for development land?

A RICS probate valuation is prepared in line with the RICS Red Book valuation standards. For land with development potential, the framework matters more than it might for a straightforward residential property, because so much of the assessment rests on informed judgement rather than direct comparison.

Instructing a RICS-qualified surveyor with genuine land valuation experience gives executors a report that sets out the evidence and reasoning behind the figure, not just a number. That transparency is what allows a valuation to be defended if HMRC does raise a query, and it demonstrates that the executor took reasonable care in meeting their legal obligations.

It also protects the estate's other beneficiaries. A properly reasoned valuation, prepared to the standards set out in our guide to valuation services, reduces the chance of disputes over whether the figure used to calculate each beneficiary's share was fair.

Speak to our probate valuation team about development land

Valuing development land for probate calls for more than a general knowledge of property prices. Our specialists combine chartered surveying expertise with a detailed understanding of planning policy, hope value, and development appraisal, so executors can rely on a figure that will stand up to scrutiny.

We understand that every estate is different, which is why we take a unique approach to every scenario approach, instead of using a generic template.

Whether you need a probate valuation for a single field or a wider portfolio of land, call 0330 191 8107, email [email protected], or complete the contact form below to arrange a consultation.