Lifetime transfers: loss to estate greater than the value of property given
- the transfer reduces the value of property retained by the transferor, or
- the transferor pays the tax on the transfer and so grossing up (IHTM14593) is necessary (this cannot apply to PETs (IHTM04057).
A owns Blackacre, valued at £200,000, and gives a half share to B.
The value of a half share is usually less than an arithmetic half of the whole. If a half share is valued at £90,000, the loss to A’s estate (the difference between the value of the whole and of the half retained) is £110,000 which is greater than the value of the half share given.
A owns 60 shares in X Ltd. The issued capital of X Ltd is 100 shares so A has control of the company. A gives 20 shares to B.
As the gift causes A to lose control of the company, the loss to A’s estate (the difference between a control holding of 60 shares and a minority holding of 40 shares) is much greater than the value of 20 shares by themselves.
Determining the loss to the estate is more complicated where
- the loss does not depend only on property owned by the transferor, for example where there is other property, such as settled property, that forms part of the transferor’s estate, or there is related property, (IHTM09701) or
- where dividing the property into natural lots; or valuing two or more items of property as a single unit (see IHTM09701), produces a higher value.
A owns a half share of Blackacre in their own name and is the life tenant of a settlement which owns the other half share. So the whole of Blackacre forms part of A’s estate. If A gives the half share that they own to B, the result is the same as example 1. The position is different if A had released their life interest (IHTM04093) in favour of B.