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HMRC internal manual

Inheritance Tax Manual

Special valuation matters: lease for life granted gratuitously

Where a freeholder or head leaseholder grants a lease for life (IHTM16190) or one terminable on death then by IHTA84/S43 (3) it is treated as a settlement and the property as settled property unless the lease was granted for full consideration (IHTM28382).

The grant of a lease for life normally reduces the grantor’s estate by more than the value of the lease. If the lessor and the lessee were at arm’s length, no reference to the VOA (IHTM23002) will ordinarily be required except perhaps for determining the adequacy of the consideration. In other cases there is likely to be an IHT claim measured by the loss to the transferor’s estate (IHTM04054).

All cases involving leases for life where a reference to the VOA is required should be submitted to TG.

Any case in which the consideration for the lease was not full consideration and was given wholly or partly in the form of a premium should also be referred to TG.