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HMRC internal manual

Inheritance Tax Manual

Leases for life: what happens if consideration was given?

A lease granted for full consideration in money or money’s worth is not caught by IHTA84/S43 (3).

If partial consideration is given, e.g. low rent or a modest premium, the lease is treated as a settlement and value of the property has to be apportioned. The proportions are fixed by reference to the values at the time the lease was granted.

So if only 25% of the open market rent was payable then one quarter of the value of the property will be included in the lessor’s estate (IHTA84/S170) and three quarters in the lessee’s estate (IHTA84/S50 (6).