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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Special valuation matters: cesser of annuity/annuity charged on the land

The fund established to secure payment of an annuity (IHTM16210) to a deceased person may include land. If the annuity is secured wholly or partly on land you should send form VOA 3 with the request for valuation which

  • should make it clear that the valuation is required in connection with a cesser of annuity, and
  • must incorporate a request for the following information
  1. the net annual income of each item of land in the fund, and
  2. whether there was any prospect of a reversion to an increased income which would influence the opinion of the principal value of the land.

If the VOA’s answer to question (2) is in the affirmative you should refer the case to TG for consideration.

If there is no such prospect you will able to calculate the extent of the ‘slice’ (IHTM16212) using in the denominator

  • the net annual income of the land as reported, plus
  • the income of any other assets in the fund

Once the initial slice has been calculated you should then refer the papers back to the VOA (IHTM23002) for an estimate of the principal value of the appropriate slice of the land. The slice fraction will be applied to the other assets and added to the VOA’s figure to provide the value of the annuity slice.

Neither the annual income nor the principal value of the slice will have been given by the VOA in the first instance. If the taxpayer is unable to accept the suggested figure for the latter when it is put to them the VOA should be asked to ascertain whether the disagreement results from a difference

  • in the net annual income adopted, or
  • in the calculation of the resulting principal value

The converse will apply when the deceased’s interest subsists in land subject to an annuity. The claim for tax will be limited to part only of the property and the VOA should be asked to value that part. This may necessitate a preliminary reference to ascertain the net annual income.

If an annuity is charged on land to which the deceased was absolutely entitled the claim will be limited as above, the part charged with the annuity being treated as a reversionary interest

Where the annuities arise other than under a settlement the opinion of value put forward by the VOA will show the net principal value (that is, after deduction of the capitalised annuity). If deduction is not permissible the VOA should be informed.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) IHTM16212(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Refer any difficulties on a case involving cesser of annuity to the TG who will advise you on what action to take.