IHTM33163 - Loss on sale of land: purchases: example of how to adjust the sale price

Julian is the life tenant of a settlement comprising Blackacre, Whiteacre and Greenacre plus various other investments.

After Julian’s death the trustees carry out the following actions

They grant a depreciatory lease of Blackacre. Hhad this been in place at the death the value would have been reduced to £36,000.
They demolish the porch at Whiteacre. Without the porch the value at the death would have been reduced to £49,000.
They exchange Greenacre for listed securities at a time when its value is £22,000
They purchase Blueacre for £17,200.

Blackacre was valued at death (IHTM33100) at £40,000[D] and its sale price (IHTM33072) is £30,000.

Whiteacre was valued at death at £50,000[D] and its sale price is £51,000.

The adjustments under IHTA84/S193 for changes in the interest or underlying land (IHTM33121) are +£4,000 for Blackacre and +£1,000 for Whiteacre.

After this adjustment, the sale prices are £34,000 for Blackacre and £52,000 for Whiteacre, a total of £86,000[B].

The IHTA84/S196 adjustments (Note 1) arising from the exchange (IHTM33150) of Greenacre are +£1,500 for Blackacre and +£500 for Whiteacre.

The adjusted sale prices are now £35,500[S] for Blackacre and £52,500[S] for Whiteacre.

Finally, the IHTA84/S192 adjustment (Note 2) for the purchase (IHTM33161) of Blueacre are +£900 for Blackacre and -£500 for Whiteacre.

The fully adjusted ‘sale value’ (IHTM33073) for the two properties are £36,400 for Blackacre and £52,000 for Whiteacre.

Note 1

Greenacre:

The adjustments are:

(£2,000 ÷ £8,000) × (£40,000 - £34,000) = £1,500

(£2,000 ÷ £8,000) × (£52,000 - £50,000) = £500

Purchase of Blueacre £17,200 [A]

Using the formula at IHTM33162 of (A ÷ B) × (D - S), the adjustments are

£17,200 ÷ £86,000 × (£40,000 - £35,500) = £900 (to be added to the sale price of Blackacre), and
£17,200 ÷ £86,000 × (£50,000 - £52,500) = £500 (to be deducted from the sale price of Whiteacre).