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HMRC internal manual

Inheritance Tax Manual

The rate of relief: Vacant possession and extra statutory concession F17

By Extra-Statutory Concession F17 dated 13 February 1995 (ESC F17), which continued our existing practice, the higher (vacant possession) rate applies to let land if the deceased’s/transferor’s interest in the property either

  • carries a right to vacant possession within twenty-four months of the date of the transfer, or
  • is, though let, valued at an amount broadly equivalent to the vacant possession value of the property.

Vacant possession within twenty-four months

Generally a notice to quit an agricultural tenancy is invalid if it claims to terminate the tenancy before the expiration of twelve months from the end of the current year of tenancy. If an unchallenged notice to quit had been served shortly after the beginning of the current year of tenancy, the tenant would have well nigh two years before he left. Where a tax charge arose in respect of the landlord’s interest in the land in such circumstances after service of notice to quit, it would not be appropriate to deny relief at the higher (vacant possession) rate simply because vacant possession could not be obtained within twelve months, as the value of the landlord’s interest would not be significantly less than the full vacant possession value.

This part of the concession will only apply when an unchallenged notice to quit had been served before the date of death/transfer. Where a 1986 Act or a 1991 Act tenancy is still in existence at the date of transfer, the rate of relief remains at the lower rate, see IHTM24230 for further details.

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Property valued at an amount broadly equivalent to vacant possession

The second part of the extra-statutory concession applies where the deceased/transferor and tenant are so closely connected that in practice the open-market value of the property is broadly the same as its value with vacant possession, for example, where the property is let to a company controlled by the deceased/transferor. A valuation on this basis is sometimes known as a package valuation. (IHTM23202)