Inheritance Tax Manual

Section 14: liability of spouse or civil partner for transferor's tax including relief for falls in market value

The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.

14.1 General

S.203 IHT 1984 is an anti-avoidance provision which forestalls the possibility of a transferor who incurs IHT liability in respect of a chargeable transfer, making an exempt or partially exempt transfer of property to the spouse or civil partner so as to leave insufficient assets to pay the tax. The provision operates by making the spouse or civil partner concurrently liable with the transferor for the tax due on the chargeable transfer.

14.2 Limit of spouse’s liability

The limit of the tax liability of the transferor’s spouse or civil partner is determined by the “market value” (as defined in s.140(2)) of the property at the date of transfer to the spouse or civil partner.

14.3 Fall in value relief

S.203(2) provides for a fall in value relief for the spouse’s concurrent tax liability where the transferor is owing tax, provided the “spouse transfer” preceded the “chargeable transfer”.

14.4 References to DVs

In detail, the rules for the operation of s.203 are very complex and can require substantial valuation input from DVs. However, partly by virtue of its very existence and partly because of the amendments to the taxation of lifetime transfers when IHT was introduced in 1986, cases involving the operation of the section are in practice extremely rare. Any case which does arise will be referred to the DV via CEO(DVS). with ad hoc instructions how to proceed. In the event of a reference being received direct from HMRC(CT) the papers should be referred to CEO(DVS) for advice before any action is taken.

14.5-99 Reserved