HMRC internal manual

Inheritance Tax Manual

Special valuation matters: Leasehold Reform Act 1967

The Leasehold Reform Act 1967 came into force on the 1 January 1968 and its scope has been substantially extended by subsequent legislation. Under the Act owner-occupiers of leasehold (IHTM23001) houses within certain statutory limits are given the right to

  • a fifty year extension of their lease, or
  • a right to enfranchisement (which enables them to acquire the freehold (IHTM23001) compulsorily at a price depreciated by the right to the fifty year extension)

The VOA (IHTM23002) should automatically take account of the effect of the Act when valuing leasehold interests and freehold reversions. There is no need for special instructions from this office.

Where at the time of enfranchisement there is outstanding IHT charged on the freehold reversion you should assume that the charge on the reversion is

  • overridden by the conveyance to the tenant, and
  • the charge shifts to the proceeds of sale

As a result, where tax is being paid by instalments (IHTM31418), the right to pay by instalments ceases. The outstanding tax, or the remaining instalments, should therefore be claimed from the landlord as the vendor. You should note, however, that in order to avoid or mitigate financial hardship the Court, on application by the landlord, has power under s.36 to discharge or modify any charge on the property, including a charge for tax.

This Act does not apply in Northern Ireland.