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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Lifetime transfers: specific lifetime reliefs: interests in land: leases

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