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HMRC internal manual

Inheritance Tax Manual

Restrictions on the freedom to dispose of assets: contracts made before 27 March 1974

If the contract was entered into before 27 March 1974 the property (IHTM04030) is valued with the restriction in place unless the first ‘relevant event’ (IHTM09773) is a transfer on death, IHTA84/S163 (2).

Example 1

On 20 March 1974, A grants B an option to purchase Blackacre in 15 years time for £20,000.

The 1974 value of Blackacre was £13,000, so the option clearly had a value.

A retains Blackacre until B exercises the option. At that time Blackacre was worth £150,000.

In view of IHTA84/S163 (2) the restriction is not ignored, despite the absence of consideration. The sale is not a transfer of value because

  • the property is treated as being worth £20,000, and
  • the purchase price paid was £20,000. | | || | || | Example 2

The facts are as in example 1, but in 1985 A gives the property, subject to the option to his daughter C. For the purposes of that transfer the property is valued subject to the option, IHTA84/S163 (2).

C dies in 1988. Again the property is valued subject to the option as the death of C is not the first relevant event.