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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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- Lifetime transfers: the charge to tax: reliefs: fall in value relief

You may need to calculate the additional tax by reference to the death on a reduced value for tax if the value of property given has fallen between

  • the date of the gift, and
  • the date of the transferor’s death, or
  • an earlier qualifying sale of the property given.

The reduction has to be claimed by the person liable for the tax. You can find fuller instructions about fall in value relief at IHTM14621 onwards.


Wayne makes two lifetime transfers in excess of the annual exemption:

  • In January 2009 - a Potentially Exempt Transfer (PET) of £100,000 to his daughter, Ursula
  • In December 2009 - a holding of 175,000 shares worth £350,000 to a relevant property trust

Wayne dies on 1 November 2012.

There was an immediate charge of £5,000 on the transfer of December 2009. By the time of Wayne’s death on 1 November 2012, the holding of shares is worth only £262,500 and the trustee claims fall in value relief. The additional tax is charged as follows:

Previous lifetime total =£100,000
Transfer Dec 1999 = £262,500
Value now chargeable = £362,500
Less IHT nil rate band at date of death - £325,000
  = £37,500
Tax at 40% on £37,500 = £15,000
Less tax previously paid on the December 1999 transfer - £5,000
Total tax payable on the December 1999 transfer on Wayne’s death = £10,000

Any reduction for fall in value relief does not affect the value of the chargeable transfer for the purposes of cumulation in calculating the tax on later transfers, including the transferor’s death.

The value for cumulation purposes remains the same as for the IHT charge at the time of the transfer.