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HMRC internal manual

Inheritance Tax Manual

Special valuation matters: lease for life reserved by the transferor or granted by transferee in fulfilment of a condition

Where the transferor had transferred property but reserved to himself a lease for life or one terminable on a death, or where the transferor had transferred property on condition that the transferee grant such a lease in his favour, there are two distinct types of IHT charge to consider, which are

  • under the GWR (IHTM14025) rules in FA86 and
  • under the other provisions of the IHT legislation - the following instructions apply to charges under these other provisions.

Unless the parties to the transaction were quite clearly at arm’s length you should

  • ask the VOA (IHTM23002) to report the vacant possession value and to say whether the transferor’s tenancy fell within the protection of the Rent Acts. If it did he should report the fair rent for the property, or if it did not, the full open market rent at the date of the transfer. You should send a copy of the tenancy agreement with the valuation request.

Prior to 15 January 1989 tenancies were capable of being protected under the provisions of the Rent Act 1977. The Housing Act 1988 introduced a new concept, the ‘assured tenancy’, for tenancies created after that date. Such tenancies broadly take the place of those protected by the 1977 Act.

In Scotland the Housing (Scotland) Act 1987 applies with effect from 2 January 1989.

In Northern Ireland the equivalent legislation is the Rent (NI) Order 1978.

  • ask the taxpayer to

    • state the transferor’s date of birth, unless this is already known
    • give brief details of his general state of health at the time of the transfer, and
    • state whether there is any reason to suppose that the transferor’s life would have been insurable at anything other than the normal rates of premium

When this information is to hand, you should ask the Board’s Actuarial Officer to advise as to the overall value of the transferor’s right to continue to reside in the property. The value transferred should thus be the difference between the vacant possession value of the land and the value of the right of continued residence.

Any difficulty encountered in correspondence with the VOA should be referred to TG to resolve it with the VO Liaison Officer.

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