Even that picture shows 120m from the top of the hill, so I'll keep on doing what I have been. Anything else doesn't make sense to me and that picture confirms it - unless I'm completely missing something.
You are completely missing something.
"Your drone or model aircraft must never be more than 120m (400ft) from the closest point of the earth’s surface.
If you fly where the ground falls or rises, such as over hills, mountains or cliffs, you may need to adjust your flight path so that your drone or model aircraft is never more than 120m (400ft) from the closest point of the earth’s surface."
How can you misinterpret that?
You're standing on top of a hill which is 300m ASL. You take off and fly up to 120m above the ground. At this point, you're 120m above the closest point of the earth's surface which is the top of the hill. That's absolutely fine, no problem at all. However, as soon as the ground falls away, you have to descend so you're never more than 120m from the closest point of the earth's surface.
You fly horizontally so the drone is no longer above the hill. Your drone is now 420m above the closest point of the earth's surface, somewhat higher than the 120m which is allowed.
The picture demonstrates it perfectly, your drone can't have more than 120m of air between it and the ground.
There's nothing stopping you taking off from the top of a hill but once that ground drops away, you need to lower your drone.
Take it one step further. you're on a welsh mountain peak at 1000m. You take off and only go up a couple of metres but then you fly your drone into the valley which puts you at 1002m above the bottom of the valley. A fast jet comes through on a training mission, your drone gets sucked into the jet intake and down goes the aircraft. Luckily, the pilot ejects.
In court, would you still be arguing that your drone is only 120m above the ground?