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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: calculation of the charge on land: valuation date and the 5 year cycle

FA04/Sch15/Para 4(5) provides the authority for regulations to be made to specify that a valuation of the relevant land may be by reference to an earlier valuation date. SI2005/724 The Charge To Income Tax By Reference To Enjoyment of Property Previously Owned Regulations contains provisions that describe the valuation date and define the periods to which a valuation will apply

  • the ‘first valuation date’ is the date on which the POA charge first applies to a chargeable person, SI 2005/724/Art 4(3), and
  • the ‘five year anniversary’ is the fifth anniversary of the 6 April in the year of assessment in which the POA charge first applied to a chargeable person; and subsequent anniversaries at 5 year intervals, SI 2005/724/Art 4(3).

Where the chargeable person had already disposed of the relevant land and then occupied it as at 6 April 2005, the valuation of the relevant land for 2005/06 should be undertaken at that date. In future years, the valuation of the land is ascertained by reference to the valuation either at the first valuation date or the last five year anniversary, SI 2005/724/Art 4(1). So the valuation obtained on 6 April 2005 (or any subsequent date if occupation began after that date) will apply for the tax years in the period ending 5 April 2010.

The rental value for 2005/06 is calculated by reference to the annual value for that year, and in future years, the rental value will be determined by reference to the rental value for either the first year of assessment or the rental value for the year of assessment starting at the last 5 year anniversary, SI 2005/724/Art 4(2). So again, the rental value for 2005/06 will apply for the next 5 years.

The ‘relevant land’ for the purposes of FA04/Sch15/Para 4(5) is the land currently occupied by the chargeable person. So, where a valuation has been carried out in respect of a charge arising under FA04/Sch15, and within the 5-year cycle the subject property is sold and a smaller less valuable property is bought for occupation by the chargeable person; or there is a part disposal reducing the property occupied by the chargeable person, then a new valuation will need to be carried out which will be used for the remainder of that 5-year cycle. So if a property was sold in 2008 and a new one purchased and occupied, a new valuation will be needed in 2008 and again on 6 April 2010.

If there is no valuation date at a 5 year anniversary, the date on which the POA charge next applies is to be treated as the date on which, and being in the year of assessment in which the POA charge first applied SI 2005/724/Art 4(4).

So if there is an interruption in the person’s use or occupation of the property and the year of a 5-year anniversary is not a taxable period, the year in which the provisions of FA04/Sch15 are applied again will be treated as the next 5-year anniversary.