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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Special valuation matters: business premises owned by the deceased and occupied by a partnership terminating on the relevant transfer

These instructions do not apply where the premises are partnership property (IHTM23198).

It is our responsibility to establish the basis of valuation before reference is made to the VOA (IHTM23002). The issue is whether the occupation is protected by statute. You may find Hill and Redman: Law of Landlord and Tenant useful (this is available in the Library), and TG will advise as necessary.

There are differences between Scottish law and the law in the rest of the UK.

For land outside Scotland the instructions are as follows

  • Where business premises in England or Wales owned by the deceased were occupied by a partnership which terminated on the relevant transfer (either under the provisions of the Partnership Act 1890, or under the terms of the partnership agreement) and either

    • the partnership occupied the premises under a tenancy for the purposes of a business protected by Part II of the Landlord and Tenant Act 1954, as amended by Part I of the Law of Property Act 1969, or
    • a tenancy for the duration of the partnership has to be inferred (Pocock v Carter [1912) 1 Ch 663)

the premises should be valued subject to that tenancy where there was acceptable evidence of the existence of a tenancy.

  • A mere licence or tenancy at will is not protected by the Landlord & Tenant Act and where the partners held the premises under a licence or tenancy at will a valuation with vacant possession is appropriate.
  • The tenancies which are excluded from protection under the Act are specified in .section 43. The most important ones so far as partnerships are concerned are tenancies of agricultural holdings (IHTM23171) and mining leases, but reference should be made to the Act and to textbooks in the Library for full particulars of other excluded tenancies. You should take particular care where the tenancy is of mixed residential and business premises.
  • In Northern Ireland, the equivalent legislation is the Business Tenancies (NI) Order 1996 and the equivalent of s.43 of the English Act referred to above is Article 4 of the Order.

For Scottish law the instructions are as follows

  • In Scotland there is no statutory protection for business tenants except under the Tenancy of Shops (Scotland) Act 1964. Where there is acceptable evidence of a tenancy affecting the interest of the landlord which falls to be valued, the property should be valued subject to that tenancy, but subject to the following qualification. If there is any indication that the partnership came to an end on the death of the deceased the matter should be referred to the Team Leader for advice. Scottish partnerships can come to an end on the death of a partner in the following circumstances
  1. in terms of the partnership agreement
  2. where there is no partnership agreement
  3. on the death of one partner in a two partner partnership

Whichever law applies, when referring the property to the VOA you should specify clearly (using form VOA 3) the appropriate basis of valuation.