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HMRC internal manual

# Inheritance Tax Manual

You may need to make an adjustment to the market values (IHTM14626) where the transferred property is a leasehold interest, having not more than fifty years to run at the time of the chargeable transfer.

In these circumstances you have to make an adjustment to the market value of the property transferred at the date of death or sale in accordance with IHTA84/S138.

You have to increase the value at the relevant date using the formula:

P(1) - P(2) ÷ P(1) × mv

• mv is the market value at the time of the chargeable transfer.
• P(1) and P(2) are the percentages derived from the table below (which comes from TCGA92/S8(1)) by reference to

• the length of the lease at the time of the chargeable transfer - P(1), and
• the length of the lease at the date of death or sale - P(2).
 Years Percentage 50 or more 100.000 49 99.657 48 99.289 47 98.902 46 98.490 45 98.059 44 97.595 43 97.107 42 96.593 41 96.041 40 95.457 39 94.842 38 94.189 37 93.497 36 92.761 35 91.981 34 91.156 33 90.280 32 89.354 31 88.371 30 87.330 29 86.226 28 85.053 27 83.816 26 82.496 25 81.100 24 79.622 23 78.055 22 76.399 21 74.635 20 72.770 19 70.791 18 68.697 17 66.470 16 64.116 15 61.617 14 58.971 13 56.167 12 53.191 11 50.038 10 46.695 9 43.154 8 39.399 7 35.414 6 31.195 5 26.722 4 21.983 3 16.959 2 11.629 1 5.983 0.00

## Example

Abdul transfers a lease having exactly four years to run on 31 December 2006 when it is worth £20,000. He dies on 31 December 2008, when the lease is worth £5,000. Under the table, P(1) is 21.983 and P(2) is 11.629.

For relief purposes, increase the £5,000 by

(21.983 - 11.629) ÷ 21.983 × £20,000 = £9,420

to £14,420.

If the duration of the lease is not an exact number of years, use the percentage for the whole number of years plus one twelfth of the difference between that and the percentage for the next highest number of years for each additional month, counting 14 days or more as one month.

## Example

On 5 April 2004 Barbara transfers a lease expiring on 31 March 2019. It was worth £50,000 on that date. She died on 20 June 2008 when the lease was worth £35,000.

At the transfer date the lease had 14 years, 11 months and 25 days to run. This is taken to be 15 years so P(1) is 61.617.

At the date of death the lease had 10 years, 9 months and 11 days to run. This is taken to be 10 years and 9 months, so P(2) is calculated as:

Percentage for 10 years = 46.695, plus

Nine twelfths of the difference between the percentages for 10 and 11 years

(50.038 - 46.695) × (9 ÷ 12) = 2.507

So P(2) = 46.695 + 2.507 = 49.202.

For relief purposes you would increase the £35,000 by

(61.617 - 49.202) ÷ 61.617 × £50,000 = £10,074

to £45,074.

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## Note

Also consider whether the lease, being an interest in land, is subject to amendments for any changes (IHTM14661) that have occurred during the relevant period