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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Transfers on death: changes in value by reason of the death

The deemed transfer of value (IHTM04042) under IHTA84/S4 (1) takes place immediately before the deceased’s death. However, the death itself often affects the value of a person’s property, for example, a life assurance policy maturing on the death will often pay out a greater sum than the open market value of policy immediately before the death. IHTA84/S171 recognises this by providing that certain changes in value, which occur by reason of the death, are to be taken into account in valuing the estate.

The changes to be taken into account are specified in IHTA84/S171 (2). Subject to the exception mentioned below, the changes are:

  • an addition to the property in the estate
  • an increase in the value of any property in the estate, and
  • a decrease in the value of any property in the estate (unless the decrease results from an alteration in the capital or share rights of a close company (IHTM04069) under IHTA84/S98 (1)). Examples

  • Damages payable to the personal representatives under the Law Reform (Miscellaneous Provisions) Act 1934 are included in the death estate.
  • A life assurance policy maturing on the death is valued as a sum immediately payable.
  • Property that becomes vacant on the death is valued with vacant possession.
  • If the deceased’s death causes a fall in the value of shares, this is taken into account.The exception is that IHTA84/S171 does not apply to the termination on the death of any interest (

IHTM04082) or the passing of any interest by survivorship (IHTM15081). Both these occurrences will affect the value of a person’s estate in that by reason of their death, the property passes to another person and so the value of the property in the person’s estate is decreased. Under IHTA84/S171 alone, the decrease should be taken into account. This would mean that the charge under IHTA84/S4 (1) on settled property in which the deceased had a life interest and on joint property passing by survivorship would always be reduced to nil.

IHTA84/S171(2) disapplies IHTA84/S171 in these circumstances and a charge is levied on the open market value of assets concerned.