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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: calculation of the charge on land: non-exempt sales

Sales for full consideration will normally be excluded transactions (IHTM44031). FA04/Sch15/Para 4(4) introduces the concept of a ‘non-exempt sale’ for a disposal which is

  • a sale of the chargeable person’s whole interest in the property,
  • for a consideration paid in money in sterling or any other currency,
  • that is not an excluded transaction

and therefore covers sales made for less than the market value for cash. The ‘appropriate proportion’, which is relevant for ascertaining the ‘appropriate rental value’ in FA04/Sch15/Para 4(2) is reduced using the formula

(MV-P) ÷ MV where

  • MV is the value of the interest in land at the time of the sale, and
  • P is the amount paid.

Note that these provisions only apply to a sale of the whole of an interest in a property. They do not apply to part sales or to exchanges, or to transactions where the contribution condition (IHTM44005) is met.


Andrew sells his house to his daughter for £100,000. It is worth £400,000. He continues to live in the house. The rental value is £12,000. The appropriate portion is

(400,000 - 100,000) ÷ 400,000 = 25%

The rental value subject to the POA charge is reduced by 25% to £9,000.

However, since Andrew has made a gift of 75% of the property and has continued to live in the house, the gift element is subject to a reservation of benefit (IHTM14301) and outside the POA charge (IHTM44044). This will remain the case even if the sharing provisions of FA86/S102B(4) apply so that there is no reservation of benefit in view of FA04/Sch15/Para11(5)(c) (IHTM44047). So, in most cases a non-exempt sale will be outside the POA charge since the proportion of the property that is attributable to the sale proceeds (25% in the example above) is relieved by FA04/Sch15/Para 4(4) and the proportion that was gifted is relieved as it is, or would have been, subject to a reservation of benefit.

If Andrew had sold part of his house to his daughter at less than the full market value then the non-exempt sale provisions would not apply. So in the above example if he sold half his house to his daughter for £100,000 and that half share was in fact worth £200,000, although he would have made a gift of a one quarter share in which he may have reserved a benefit (subject to FA86/S102B(4) as above), the proportion of the rental value that is attributable to the a one quarter share that was sold, would be subject to the POA charge.

On death, Andrew’s estate would contain the half share of the property he had continued to own, plus the £100,000 received from his daughter and a reservation of benefit in the one quarter share he gifted.