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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
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Restrictions on the freedom to dispose of assets: consideration given for the restriction

You can take the restriction or fetter into account to the extent that consideration in money or money’s worth was given for it, IHTA84/S163 (1)(a).

The allowance given for the restriction is proportionate rather than a straightforward deduction of the consideration given.

Example

A grants B an option to purchase Blackacre on A’s death for £40,000. B pays£10,000 for the option. The market value of the option at that time was £30,000.

A dies. Blackacre is then worth £100,000 on the open market but only £40,000 with the fetter.

As partial consideration was given for the option, the fetter cannot be completely ignored. A proportionate allowance for the fetter is given against the difference between the open market value and the restricted value of Blackacre at the date of death.

 

(£10,000 ÷ £30,000) x (£100,000 - £40,000)= £20,000

The value of Blackacre on A’s death is therefore £100,000 - £20,000 = £80,000.