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HMRC internal manual

Inheritance Tax Manual

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.

IHTA84/S171 does not however apply to the termination of a qualifying interest in possession (IHTM16062) on death or to property which passes by survivorship to the remaining joint owner(s) by reason of the death (IHTM15081). IHTA84/S171(2) disapplies IHTA84/S171 in these circumstances and a charge is levied on the open market value of the assets concerned.