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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Special valuation matters: improvement grants for residential properties

Grants of various types are payable by local authorities to owners of houses towards the cost of conversions and improvements (see the Housing Grants, Construction & Regeneration Act 1996 and the Housing (Scotland) Act 2001 Part VI).

You should consider enquiring whether a grant was applied for or paid in any case where such a possibility is suggested by a sizeable deduction for work on a house belonging to the deceased.

When there is a death before payment of a grant but after its approval IHT should be claimed on the amount of the grant to be paid, less any appropriate discount.

The grant is made under certain conditions. If one of those conditions is breached the grant is repayable, often with interest. A typical condition might be that the property must not be sold within five years of completion of the works.

The death of the recipient is not regarded as a ‘sale’ for this purpose. It does not give rise to a present liability to repay the grant and so no debt is due from the estate.

The date of death value, however, may be depressed because the hypothetical purchaser would be faced with the obligation, on a sale or other breach, to repay the grant within the balance of the period.

This line has been supported by the Court of Appeal in Alexander v IRC [1991) STC 112. That case concerned the ‘right to buy’ legislation and the contingent liability to reimburse a discount. The Court decided that whilst no deduction was due for the liability itself the contingent liability was a factor to be taken into account in valuing the property.

When referring property to the VOA (IHTM23002) where an improvement grant was approved or paid before the death you should obtain from the taxpayer

  • full details of the grant conditions, and
  • the ‘certified date’ which is the date from which the property is certified by the local authority as becoming fit for occupation following completion of the grant-aided works - s.499(2) Housing Act 1985.

The VOA should then be asked to value the property in accordance with Chapter 1B Section 17.