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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Settled property: what is the value transferred when an interest in possession ceases?

When a qualifying interest in possession (IIP) (IHTM16062) in settled property comes to an end during the lifetime of the person entitled to it, IHTA84/S52 (1) states that the value for IHT purposes is ‘equal to the value of the property in which their interest subsisted.’ By virtue of IHTA84/S51 (1)(b) this applies equally to a lifetime disposal of a qualifying IIP.

The primary effect of these words is that the ‘loss to the estate’ (IHTM04054) principle does not apply to either lifetime charges or failed PETs (IHTM04057) relating to IIPs.

Nevertheless until April 1990 the value of such an interest was determined as a rateable proportion of the aggregate value of the settled property and any other property of a similar kind in the transferor’s estate. This is because we interpreted IHTA84/S52 (1) as conveying what has been called the ‘aggregation’ basis (IHTM04029) of ascertaining the value on which tax should be charged.

Since that date the Board has taken the view that, in such circumstances, the settled property in which the interest subsisted should be valued in isolation without reference to any similar property. The Board’s new view was expressly stated to be without prejudice to the application of the Ramsay principle in an appropriate case or to the provisions of the IHTA relating to associated operations (IHTM14822) and (IHTM04094)


Amir owns shares comprising 30% of Xenoxa Marketing and Publicity Ltd, an unquoted company and has an immediate post death interest (IHTM16061) in a further 30%.

On death, the estate includes a 60% holding. The value will reflect the fact that it has control on the company and will (usually) be worth substantially more than two 30% holdings. The value of the 60% holding will be divided equally between Amir’s Free Estate and the settled property.

If Amir disposes of the immediate post death interest whilst still alive, on our old view we would have valued the 60% holding and attributed half to the value of the IIP. Now, we can only look at the value of the transferred asset in isolation.

So, if the 60% holding is worth £100,000 and each 30% holding worth £20,000, we can only tax £20,000 - and £30,000 leaves Amir’s estate without being taxed.