Inheritance Tax Manual

Section 5: relation to other Capital Taxes

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


5.1 Introduction

The purpose of this Section is to bring to the attention of DVs the instances in which valuation for IHT can affect or be affected by the other Capital Taxes. It does not deal with Income Tax or VAT, nor occasions where there is an interplay solely between taxes other than IHT.

5.2 Reference to DV

Each of the main Capital Taxes (IHT and CGT) are dealt with by different branches of the IR, and instances may arise where the DV receives a reference to provide an Opinion of Value for one tax, without any mention being made of further references for other taxes. DVs should therefore be aware of the possibility of further references concerning the same occasion and this Section describes some of the more common instances.


5.3 On death

A transfer on death is not normally a disposal for CGT purposes. However a value “ascertained” for an interest in land for ED, CTT or IHT purposes in relation to a date of death on or after 30 March 1971 is required by statute to be adopted as the deemed acquisition cost of that interest for CGT purposes on its subsequent disposal (s.274 TCGA 1992). There is therefore a statutory bar to negotiations for CGT purposes of a value previously ascertained for IHT purposes by a determination issued in accordance with s.221 IHTA 1984 or where a certificate of discharge has been issued, except where an apportionment is required.

DVs should bear in mind the need for the IHT values they are reporting to be compatible with the CGT values in that they may subsequently have to negotiate cases where the statutory link is not applicable (either because there has not been a formal “ascertainment” of the value for IHT purposes by HMRC(IHT) or because the value “ascertained” does not relate exactly to the interest being valued for CGT purposes).

5.4 Lifetime Transfers

A lifetime transfer, whether at or below market value, is normally a disposal for CGT purposes. Where a gain is realised or is deemed to be realised, and there is a gratuitous element in the disposal, it follows that a potential liability may arise for both CGT and IHT on the same disposal. Where valuations are required in such a situation, separate references will be made by both HMRC(IHT) and the Inspector of Taxes. Most lifetime transfers since 18 March 1986 are potentially exempt (see Section 4) for IHT purposes and will not give rise to valuation requirements unless the transferor dies within seven years. It is likely therefore that the CGT reference will be received first but there is no certainty that this will be so. The DV will normally deal with each case separately, though bearing in mind of course any practical valuation precedent that will be set by the first case.

5.5 Valuations for Lifetime Transfers

Unless s.17 TCGA 1992 applies the value required for CGT purposes is the market value of the interest passing and sometimes of the interest retained. For IHT purposes however it is the loss to the transferor’s estate which is the value transferred and hence the value to be reported on Form Sect 63. The market value of the interest passing may not necessarily equate to the loss to the transferor’s estate, and indeed it is unlikely to do so in undivided share cases. Hence the reported figures may not always be of the same amount. Where the DV is dealing with an IHT or CGT case and is aware that a case in respect of the other tax has arisen or is likely to arise, attention should be drawn to this in an endorsement to the report. The parties should also be made fully aware of the different basis of valuation in each case.

5.6 Effect of CGT liability on value transferred

In calculating the diminution in the value of the estate, any necessary adjustments for CGT liabilities will be carried out by HMRC(IHT) and the DV should not adjust the opinion of the ‘Value Transferred’ to reflect any such CGT liability.

5.7-99 Reserved