Inheritance Tax Act 1984

• (a) if paragraph (b) below does not apply, to the value restored by the transfer ;

• (b) if more than twelve months have elapsed between the donor's transfer and the donee's, to the value so restored reduced by 4 per cent. for every twelve months that have so elapsed ;

and where the cancelled amount is less than the whole of the value transferred it shall be treated as the highest part of that value.

• (4) As between two or more donor's transfers made by the same donor to the same donee value transferred by a later transfer shall be treated as cancelled rather than value transferred by an earlier one; and where there has been a claim in respect of a previous donee's transfer references in the foregoing provisions of this section to the value transferred shall be construed as references to the part of that value not treated as cancelled by that transfer.

• (5) For the purposes of subsection (3) above the value restored by the donee's transfer is so much of the value thereby transferred as does not exceed—

• (a) whichever is the smaller of—

• (i) the amount by which the donee's estate was increased by the donor's transfer, or

• (ii) the amount by which the donor's estate was increased by the donee's transfer, or

• (b) if there has been a previous donee's transfer, so much of the amount applying under paragraph (a) above as was not taken into account as the value restored by that transfer.

• (6) Where the value transferred by the donor's transfer fell to be calculated in accordance with the provisions of Schedule 8 to the Finance Act 1975, Schedule 10 to the Finance Act 1976, Schedule 14 to the Finance Act 1981 or Chapter I or II of this Part of this Act, the value restored by the donee's transfer as determined under subsection (5) above shall be treated as reduced to such part of it as bears to the whole the same proportion as the value transferred by the donor's transfer after applying those provisions bears to the value transferred by it before applying those provisions.

• (7) In subsection (1)(a) above the reference to tax includes a reference to interest on tax.

• (8) For the purposes of liability to additional tax by reason of the donor's death within three years after the donor's transfer, the value thereby transferred which is treated as cancelled by a donee's transfer made before the death shall include any value that would be so treated if subsection (3)(b) above had not applied.

• (9) Where the donee's transfer has increased the estate of the spouse, widow or widower of another person any value thereby transferred which can (or if a claim were made could) be taken into account as value restored in relation to a transfer made by the spouse, widow or widower shall not be so taken into account in relation to a transfer made by that other person.

Voidable transfers

150

• (1) Where on a claim made for the purpose it is shown that the whole or any part of a chargeable transfer (“the relevant transfer”) has by virtue of any enactment or rule of law been set aside as voidable or otherwise defeasible—

• (a) tax paid or payable by the claimant (in respect of the relevant transfer or any other chargeable transfer made before the claim) that would not have been payable if the relevant transfer had been void ab initio shall be repaid to him by the Board, or as the case may be shall not be payable, and

• (b) the rate or rates of tax applicable to any chargeable transfer made after the claim by the person who made the relevant transfer shall be determined as if that transfer or that part of it had been void as aforesaid.

• (2) In subsection (1)(a) above the reference to tax includes a reference to interest on tax.

• (3) A claim under this section must be made not more than 4 years after the claimant knew, or ought reasonably to have known, that the relevant transfer has been set aside.

Pension schemes, etc

Treatment of pension rights, etc.

151

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (1A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) An interest in or under a registered pension scheme , a qualifying non-UK pension scheme or a section 615(3) scheme which comes to an end on the death of the person entitled to it shall be left out of account in determining for the purposes of this Act the value of his estate immediately before his death, if the interest—

• (a) is, or is a right to, a pension or annuity, and

• (b) is not an interest resulting (whether by virtue of the instrument establishing the scheme or otherwise) from the application of any benefit provided under the scheme otherwise than by way of a pension or annuity.

• (3) Sections 49 to 53 above shall not apply in relation to an interest satisfying the conditions of paragraphs (a) and (b) of subsection (2) above.

• (4) In relation to an interest in or under a registered pension scheme , a qualifying non-UK pension scheme or a section 615(3) scheme, section 5(2) above shall apply as if the words “other than settled property” were omitted (in both places).

• (5) Where a benefit has become payable under a registered pension scheme , a qualifying non-UK pension scheme or a section 615(3) scheme, and the benefit becomes comprised in a settlement made by a person other than the person entitled to the benefit, the settlement shall for the purposes of this Act be treated as made by the person so entitled.

Cash options

152

Where on a person’s death an annuity becomes payable under a registered pension scheme , a qualifying non-UK pension scheme or a section 615(3) scheme to a widow, widower , dependant or nominee of that person and under the terms of the scheme a sum of money might at his option have become payable instead to his personal representatives, he shall not, by virtue of section 5(2) above, be treated as having been beneficially entitled to that sum.

Overseas pensions

153

• (1) In determining for the purposes of this Act the value of a person’s estate immediately before his death there shall be left out of account any pension payable under the regulations or rules relating to any fund vested in Commissioners under section 273 of the Government of India Act 1935 or to any fund administered under a scheme made under section 2 of the Overseas Pensions Act 1973 which is certified by the Secretary of State for the purpose of this section to correspond to an Order in Council under subsection (1) of the said section 273.

• (2) For the purposes of this Act—

• (a) a pension paid under the authority of a scheme made under section 2 of the Overseas Pensions Act 1973 which is constituted by the Pensions (India, Pakistan and Burma) Act 1955 or is certified by the Secretary of State for the purposes of this section to correspond to the said Act of 1955 shall be treated as if it had been paid by the Government of India or the Government of Pakistan (according as the arrangements in pursuance of which the pension was first paid under the said Act of 1955 were made with the one or the other Government);

• (b) a pension paid out of any fund established in the United Kingdom by the Government of any country which, at the time when the fund was established, was, or formed part of, a colony, protectorate, protected state or United Kingdom trust territory shall, if the fund was established for the sole purpose of providing pensions, whether contributory or not, payable in respect of service under the Government be treated as if it had been paid by the Government by which the fund was established;

• (c) a pension paid out of the Central African Pension Fund established by section 24 of the Federation of Rhodesia and Nyasaland (Dissolution) Order in Council 1963 shall be treated as if it had been paid by the Government of a territory outside the United Kingdom; and

• (d) so much of any pension paid to or in respect of any person under—

• (i) the scheme which by virtue of subsection (3) of section 2 of the Overseas Pensions Act 1973 is constituted under that section by section 2 or subsection (2) of section 4 of the Overseas Service Act 1958, or

• (ii) such other scheme made under section 2 of the Overseas Pensions Act 1973 as is certified by the Secretary of State for the purposes of the Taxes Act to correspond to section 2 or subsection (2) of section 4 of the Overseas Service Act 1958,

as is certified by the Secretary of State to be attributable to service under the Government of an overseas territory shall be treated as if it had been paid by the Government of that territory.

• (3) Subsection (1) above shall be construed as if contained in section 273 of the Government of India Act 1935; and for the purposes of subsection (2) above—

• (a) “pension” includes a gratuity and any sum payable on or in respect of death, and a return of contributions with or without interest thereon or any other addition thereto;

• (b) “United Kingdom trust territory” means a territory administered by the Government of the United Kingdom under the trusteeship system of the United Nations;

• (c) “overseas territory” means any country or territory outside the United Kingdom;

• (d) references to the Government of any such country or territory as is mentioned in paragraph (b) or (d) of that subsection include a Government constituted for two or more such countries or territories and any authority established for the purpose of providing or administering services which are common to, or relate to matters of common interest to, two or more such countries or territories.

• (4) If, by reason of Her Majesty’s Government in the United Kingdom having assumed responsibility for a pension, allowance or gratuity within the meaning of section 1 of the Overseas Pensions Act 1973, payments in respect of it are made under that section, this section shall apply in relation to the pension, allowance or gratuity, exclusive of so much (if any) of it as is paid by virtue of the application to it of any provisions of the Pensions (Increase) Act 1971 or any enactment repealed by that Act, as if it continued to be paid by the Government or other body or fund which had responsibility for it before that responsibility was assumed by Her Majesty’s Government in the United Kingdom.

Armed forces

Death on active service, etc.

154

• (1) The reliefs in subsection (1A) apply in relation to the death of a person in whose case it is certified by the Defence Council or the Secretary of State—

• (a) that he died from a wound inflicted, accident occurring or disease contracted at a time when the conditions specified in subsection (2) below were satisfied, or

• (b) that he died from a disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease during a period when those conditions were satisfied.

• (1A) The reliefs are—

• (a) that no potentially exempt transfer made by the deceased becomes a chargeable transfer under section 3A(4) because of the death,

• (b) that section 4 (transfers on death) does not apply in relation to the death, and

• (c) that no additional tax becomes due under section 7(4) because of a transfer made by the deceased within 7 years of the death.

• (2) The conditions referred to in subsection (1) above are that the deceased was a member of any of the armed forces of the Crown or a civilian subject to service discipline within the meaning of the Armed Forces Act 2006 and (in any case) was ...—

• (a) on active service against an enemy, or

• (b) on other service of a warlike nature or which in the opinion of the Treasury involved the same risks as service of a warlike natureor

• (c) responding to emergency circumstances in the course of the person's duties as a member of any of those armed forces or as a civilian subject to service discipline.

• (2A) Section 153A(3) to (5) applies for the purposes of this section.

• (3) In relation to any time before 28th July 1981 (the date of the passing of the Armed Forces Act 1981), the reference in subsection (2) above to membership of the armed forces of the Crown shall include a reference to employment as a person of any of the descriptions specified in paragraph 1(3) of Schedule 7 to the Finance Act 1975 (women’s services).

Visiting forces, etc.

155

• (1) Section 6(4) above applies to—

• (a) the emoluments paid by the Government of any designated country to a member of a visiting force of that country, not being a British citizen, a British Dependent Territories citizen, a British National (Overseas) or a British Overseas citizen, and

• (b) any tangible movable property the presence of which in the United Kingdom is due solely to the presence in the United Kingdom of such a person while serving as a member of the force.

• (2) A period during which any such member of a visiting force as is referred to in subsection (1) above is in the United Kingdom by reason solely of his being such a member shall not be treated for the purposes of this Act as a period of residence in the United Kingdom or as creating a change of his residence ....

• (3) References in subsections (1) and (2) above to a visiting force shall apply to a civilian component of a visiting force as they apply to the force itself, and those subsections shall be construed as one with Part I of the Visiting Forces Act 1952, but so that for the purposes of this section references to a designated country shall be substituted in that Act for references to a country to which a provision of that Act applies.

• (4) For the purpose of conferring on persons attached to any designated international military headquarters the like benefits as are conferred by subsections (1) and (2) above on members of a visiting force or civilian component, any members of the armed forces of a designated country shall, while attached to any such headquarters, be deemed to constitute a visiting force of that country, and there shall be a corresponding extension of the class of persons who may be treated as members of a civilian component of such a visiting force.

• (5) In the case of persons of any category for the time being agreed between Her Majesty’s Government in the United Kingdom and the other members of the North Atlantic Council, employment by a designated allied headquarters shall be treated for the purposes of subsections (1)(b) and (2) above as if it were service as a member of a visiting force of a designated country.

• (5A) Section 6(4) also applies to—

• (a) the emoluments paid by the Government of any designated country to a person belonging to the EU civilian staff, not being a British citizen, a British overseas territories citizen, a British National (Overseas) or a British Overseas citizen, and

• (b) any tangible movable property the presence of which in the United Kingdom is due solely to the presence in the United Kingdom of such a person serving as part of that staff.

• (5B) A period during which any such person belonging to the EU civilian staff as is referred to in subsection (5A) is in the United Kingdom by reason solely of that person belonging to that staff is not to be treated for the purposes of this Act as a period of residence in the United Kingdom or as creating a change of that person's residence ....

• (6) For the purposes of this section—

• “allied headquarters” means any international military headquarters established under the North Atlantic Council;

• “designated” means designated for the purpose in question by or under any Order in Council made for giving effect to any international agreement.

• “the EU civilian staff” means— civilian personnel seconded by a member State to an EU institution for the purposes of activities (including exercises) relating to the preparation for, and execution of, tasks mentioned in Article 43(1) of the Treaty on European Union (tasks relating to a common security and defence policy), as amended from time to time, andcivilian personnel (other than locally hired personnel)—made available to the EU by a member State to work with designated international military headquarters or a force of a designated country, orotherwise made available to the EU by a member State for the purposes of activities of the kind referred to in paragraph (a).

• (7) Any Order in Council made under section 73 of the Finance Act 1960 which is in force immediately before the passing of this Act shall have effect for the purposes of this section as if it had also been made under this section, and may be varied or revoked accordingly.

Apsley House and Chevening Estate

Apsley House and Chevening Estate

156

This Act shall not apply in respect of—

• (a) the rights conferred by section 3 of the Wellington Museum Act 1947, or

• (b) property held on the trusts of the trust instrument set out in the Schedule to the Chevening Estate Act 1959.

Non-residents’ bank accounts

Non-residents' bank accounts

157

• (1) In determining for the purposes of this Act the value of the estate immediately before his death of a person to whom this section applies there shall be left out of account the balance on—

• (a) any qualifying foreign currency account of his, and

• (b) subject to subsection (3) below, any qualifying foreign currency account of the trustees of settled property in which he is beneficially entitled to an interest in possession.

• (2) This section applies to a person who ... immediately before his death is neither resident in the United Kingdom nor a long-term UK resident.

• (3) Subsection (1)(b) above does not apply in relation to settled property if—

• (a) the trustees are resident in the United Kingdom immediately before the beneficiary’s death,

• (b) the settlor is alive and is a long-term UK resident immediately before the beneficiary’s death,

• (c) the settlor died on or after 6 April 2025 and was not a long-term UK resident immediately before they died, or

• (d) the settlor died before 6 April 2025 and was not domiciled in the United Kingdom when the property became comprised in the settlement.

• (3A) This section is subject to paragraph 5 of Schedule A1 (non-excluded overseas property).

• (4) For the purposes of this section—

• (a) the question whether a person is resident ... in the United Kingdom shall, subject to paragraph (b) below, be determined as for the purposes of income tax; but

• (b) the trustees of a settlement shall be regarded as not resident ... in the United Kingdom unless the general administration of the settlement is ordinarily carried on in the United Kingdom and the trustees or a majority of them (and, where there is more than one class of trustees, a majority of each class) are resident ... there.

• (5) In this section “qualifying foreign currency account” means a foreign currency account with a bank ...; and for this purpose—

• (a) “foreign currency account” means any account other than one denominated in sterling, . . .

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) In this section “bank” has the meaning given by section 991 of the Income Tax Act 2007.

Double taxation relief

Double taxation conventions

158

• (1) If Her Majesty by Order in Council declares—

• (a) that arrangements specified in the Order have been made with the government of any territory outside the United Kingdom with a view to affording relief from double taxation in relation to inheritance tax payable under the laws of the United Kingdom and any tax imposed under the laws of that territory which is of a similar character or is chargeable on or by reference to death or gifts inter vivos, and

• (b) that it is expedient that those arrangements should have effect;

the arrangements shall, notwithstanding anything in this Act, have effect so far as they provide for relief from inheritance tax, or for determining the place where any property is to be treated as situated for the purposes of the tax.

• (1ZA) For the purposes of this section, arrangements made with a view to affording relief from double taxation include any arrangements which modify the effect of arrangements so made.

• (1ZB) Arrangements to which effect is given under this section may include provision conferring (with or without other functions) functions relating to the determination of matters arising under the arrangements on a public authority in the United Kingdom or in a territory outside the United Kingdom.

• (1A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) Any arrangements to which effect is given under this section may include provision for relief in cases occurring before the making of the arrangements and provisions as to property which is not itself subject to double taxation.

• (3) Any Order in Council under this section which revokes an earlier Order may contain such transitional provisions as appear to Her Majesty to be necessary or expedient.

• (4) An Order under this section shall not be submitted to Her Majesty in Council unless a draft of it has been laid before, and approved by resolution of, the House of Commons.

• (5) Where any arrangements have effect by virtue of this section, no obligation as to secrecy shall prevent the Board or an authorised officer of the Board from disclosing to any authorised officer of the government with which the arrangements are made such information as is required to be disclosed under the arrangements.

• (6) Where arrangements with the government of any territory outside the United Kingdom are specified under any Order in Council which—

• (a) was made, or has effect as made, under section 54 of the Finance (No.2) Act 1945 or section 2 of the Finance Act (Northern Ireland) 1946, and

• (b) had effect immediately before the passing of this Act,

the Order shall notwithstanding the repeal of that section by the Finance Act 1975, remain in force and have effect as if any provision made by those arrangements in relation to estate duty extended to inheritance tax chargeable by virtue of section 4 above; but the Order may be amended or revoked by an Order in Council made under this section.

Unilateral relief

159

• (1) Where the Board are satisfied that in any territory outside the United Kingdom (an “overseas territory”) any amount of tax imposed by reason of any disposition or other event is attributable to the value of any property, then, if—

• (a) that tax is of a character similar to that of inheritance tax or is chargeable on or by reference to death or gifts inter vivos, and

• (b) any inheritance tax chargeable by reference to the same disposition or other event is also attributable to the value of that property,

they shall allow a credit in respect of that amount (“the overseas tax”) against that inheritance tax in accordance with the following provisions.

• (2) Where the property is situated in the overseas territory and not in the United Kingdom, the credit shall be of an amount equal to the overseas tax.

• (3) Where the property—

• (a) is situated neither in the United Kingdom nor in the overseas territory, or

• (b) is situated both in the United Kingdom and in the overseas territory,

the credit shall be of an amount calculated in accordance with the following formula—

$AA+B×C$

• where A is the amount of the inheritance tax, B is the overseas tax and C is whichever of A and B is the smaller.

• (4) Where tax is imposed in two or more overseas territories in respect of property which—

• (a) is situated neither in the United Kingdom nor in any of those territories, or

• (b) is situated both in the United Kingdom and in each of those territories,

subsection (3) above shall apply as if, in the formula there set out, B were the aggregate of the overseas tax imposed in each of those territories and C were the aggregate of all, except the largest, of A and the overseas tax imposed in each of them.

• (5) Where credit is allowed under subsection (2) above or section 158 above in respect of overseas tax imposed in one overseas territory, any credit under subsection (3) above in respect of overseas tax imposed in another shall be calculated as if the inheritance tax were reduced by the credit allowed under subsection (2) or section 158; and where, in the case of any overseas territory mentioned in subsection (3) or (4) above, credit is allowed against the overseas tax for tax charged in a territory in which the property is situated, the overseas tax shall be treated for the purposes of those provisions as reduced by the credit.

• (6) In this section references to tax imposed in an overseas territory are references to tax chargeable under the law of that territory and paid by the person liable to pay it.

• (7) Where relief can be given both under this section and under section 158 above, relief shall be given under whichever section provides the greater relief.

PART VI — VALUATION

CHAPTER I — GENERAL

Market value

160

Except as otherwise provided by this Act, the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.

Related property

161

• (1) Where the value of any property comprised in a person’s estate would be less than the appropriate portion of the value of the aggregate of that and any related property, it shall be the appropriate portion of the value of that aggregate.

• (2) For the purposes of this section, property is related to the property comprised in a person’s estate if—

• (a) it is comprised in the estate of his spouse or civil partner ; or

• (b) it is or has within the preceding five years been—

• (i) the property of a charity, or held on trust for charitable purposes only, or

• (ii) the property of a body mentioned in section 24, 24A,or 25 above,

and became so on a transfer of value which was made by him or his spouse or civil partner after 15th April 1976 and was exempt to the extent that the value transferred was attributable to the property.

• (3) The appropriate portion of the value of the aggregate mentioned in subsection (1) above is such portion thereof as would be attributable to the value of the first-mentioned property if the value of that aggregate were equal to the sums of the values of that and any related property, the value of each property being determined as if it did not form part of that aggregate.

• (4) For the purposes of subsection (3) above the proportion which the value of a smaller number of shares of any class bears to the value of a greater number shall be taken to be that which the smaller number bears to the greater; and similarly with stock, debentures and units of any other description of property.

• (5) Shares shall not be treated for the purposes of subsection (4) above as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange.

Liabilities

162

• (1) A liability in respect of which there is a right to reimbursement shall be taken into account only to the extent (if any) that reimbursement cannot reasonably be expected to be obtained.

• (2) Subject to subsection (3) below, where a liability falls to be discharged after the time at which it is to be taken into account it shall be valued as at the time at which it is to be taken into account.

• (3) In determining the value of a transferor’s estate immediately after a transfer of value, his liability for inheritance tax shall be computed—

• (a) without making any allowance for the fact that the tax will not be due immediately, and

• (b) as if any tax recovered otherwise than from the transferor (or a person liable for it under section 203(1) below) were paid in discharge of a liability in respect of which the transferor had a right to reimbursement.

• (4) A liability which is an incumbrance on any property shall, so far as possible and to the extent that it is not taken to reduce value in accordance with section 162B, be taken to reduce the value of that property.

• (5) Where a liability taken into account is a liability to a person resident outside the United Kingdom which neither—

• (a) falls to be discharged in the United Kingdom, nor

• (b) is an incumbrance on property in the United Kingdom,

it shall, so far as possible and to the extent that it is not taken to reduce value in accordance with section 162B, be taken to reduce the value of property outside the United Kingdom.

Restriction on freedom to dispose

163

• (1) Where, by a contract made at any time, the right to dispose of any property has been excluded or restricted, then, in determining the value of the property for the purpose of the first relevant event happening after that time,—

• (a) the exclusion or restriction shall be taken into account only to the extent (if any) that consideration in money or money’s worth was given for it, but

• (b) if the contract was a chargeable transfer or was part of associated operations which together were a chargeable transfer, an allowance shall be made for the value transferred thereby (calculated as if no tax had been chargeable on it) or for so much of the value transferred as is attributable to the exclusion or restriction.

• (2) Where the contract was made before 27th March 1974 subsection (1) above applies only if the first relevant event is a transfer made on death.

• (3) In this section “relevant event”, in relation to any property, means—

• (a) a chargeable transfer in the case of which the whole or part of the value transferred is attributable to the value of the property; and

• (b) anything which would be such a chargeable transfer but for this section.

Transferor's expenses

164

In determining the value transferred by a transfer of value, expenses incurred by the transferor in making the transfer (but not his liability for inheritance tax)—

• (a) shall, if borne by him, be left out of account;

• (b) shall, if borne by a person benefiting from the transfer, be treated as reducing the value transferred.

Tax on capital gains

165

• (1) Where a chargeable transfer is or includes a disposal of an asset and on the disposal a gain accrues to the transferor for the purposes of the 1992 Act, then if—

• (a) the whole or part of the gain is a chargeable gain or a development gain, and

• (b) the whole or part of any capital gains tax or income tax chargeable on the gain is borne by the donee (within the meaning of section 282 of that Act),

the amount of the tax so borne shall be treated as reducing the value transfered by the chargeable transfer.

• (2) Subsection (1) above shall not apply where the chargeable transfer is made under Part III of this Act and the gain accrues to the trustees of the settlement; but if in such a case any capital gains tax chargeable on the gain is borne by a person who becomes absolutely entitled to the settled property concerned, the amount of the tax so borne shall be treated as reducing the value transferred by the chargeable transfer.

• (3) In any case where—

• (a) payment of an amount of capital gains tax is postponed by virtue of Schedule 14 to the Finance Act 1984, and

• (b) any of that capital gains tax becomes payable in accordance with paragraph 11 of that Schedule by reason of the receipt of a capital payment by a close relative of the beneficiary, as mentioned in sub-paragraph (3) of that paragraph, and

• (c) all or part of the capital gains tax becoming so payable is paid by the close relative,

the payment by the close relative shall be treated for the purposes of this Act as made in satisfaction of a liability of his.

Creditors' rights

166

In determining the value of a right to receive a sum due under any obligation it shall be assumed that the obligation will be duly discharged, except if or to the extent that recovery of the sum is impossible or not reasonably practicable and has not become so by any act or omission of the person to whom the sum is due.

Life policies, etc.

167

• (1) In determining in connection with a transfer of value the value of a policy of insurance on a person’s life or of a contract for an annuity payable on a person’s death, that value shall be taken to be not less than—

• (a) the total of the premiums or other consideration which, at any time before the transfer of value, has been paid under the policy or contract or any policy or contract for which it was directly or indirectly substituted, less

• (b) any sum which, at any time before the transfer of value, has been paid under, or in consideration for the surrender of any right conferred by, the policy or contract or a policy or contract for which it was directly or indirectly substituted.

• (2) Subsection (1) above shall not apply in the case of—

• (a) the transfer of value which a person makes on his death, or

• (b) any other transfer of value which does not result in the policy or contract ceasing to be part of the transferor’s estate,

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) Subsection (1) above shall not apply where the policy is one—

• (a) under which the sum assured becomes payable only if the person whose life is insured dies before the expiry of a specified term or both before the expiry of a specified term and during the life of a specified person, and

• (b) which, if that specified term ends, or can, under the policy, be extended so as to end, more than three years after the making of the insurance, satisfies the condition that, if neither the person whose life is insured nor the specified person dies before the expiry of the specified term—

• (i) the premiums are payable during at least two-thirds of that term and at yearly or shorter intervals, and

• (ii) the premiums payable in any one period of twelve months are not more than twice the premiums payable in any other such period.

• (4) Where the policy is one under which—

• (a) the benefit secured is expressed in units the value of which is published and subject to fluctuation, and

• (b) the payment of each premium secures the allocation to the policy of a specified number of such units,

then, if the value, at the time of the transfer of value, of the units allocated to the policy on the payment of premiums is less than the aggregate of what the respective values of those units were at the time of allocation, the value to be taken under subsection (1) above as a minimum shall be reduced by the amount of the difference.

• (5) References in subsections (1) and (4) above to a transfer of value shall be construed as including references to an event on which there is a charge to tax under Chapter III of Part III of this Act (apart from section 79), other than an event on which tax is chargeable in respect of the policy or contract by reason only that its value (apart from this section) is reduced.

Unquoted shares and securities

168

• (1) In determining the price which unquoted shares or unquoted securities might reasonably be expected to fetch if sold in the open market it shall be assumed that in that market there is available to any prospective purchaser of the shares or securities all the information which a prudent prospective purchaser might reasonably require if he were proposing to purchase them from a willing vendor by private treaty and at arm’s length.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Farm cottages

169

• (1) In determining the value of agricultural property which includes cottages occupied by persons employed solely for agricultural purposes in connection with the property, no account shall be taken of any value attributable to the fact that the cottages are suitable for the residential purposes of persons not so employed.

• (2) Expressions used in subsection (1) above and in Chapter II of Part V of this Act have the same meaning in that subsection as in that Chapter.

Leases for life, etc.

170

Where under section 43(3) above a lease of property is to be treated as a settlement, the value of the lessor’s interest in the property shall be taken to be such part of the value of the property as bears to it the same proportion as the value of the consideration, at the time the lease was granted, bore to what would then have been the value of a full consideration in money or money’s worth.

CHAPTER II — ESTATE ON DEATH

Changes occurring on death

171

• (1) In determining the value of a person’s estate immediately before his death changes in the value of his estate which have occurred by reason of the death and fall within subsection (2) below shall be taken into account as if they had occurred before the death.

• (2) A change falls within this subsection if it is an addition to the property comprised in the estate or an increase or decrease of the value of any property so comprised, other than a decrease resulting from such an alteration as is mentioned in section 98(1) above; but the termination on the death of any interest or the passing of any interest by survivorship does not fall within this subsection.

Funeral expenses

172

In determining the value of a person’s estate immediately before his death, allowance shall be made for reasonable funeral expenses.

Expenses incurred abroad

173

In determining the value of a person’s estate immediately before his death, an allowance against the value of property situated outside the United Kingdom shall be made for any expense incurred in administering or realising the property which is shown to be attributable to the situation of the property, but the allowance shall not exceed 5 per cent of the value of the property.

Income tax and unpaid capital transfer tax

174

• (1) In determining the value of a person’s estate immediately before his death, allowance shall be made for—

• (a) any liability for income tax in respect of an offshore income gain, within the meaning of regulations under section 354(1) of the Taxation (International and Other Provisions) Act 2010, arising on a disposal which is deemed, under such regulations (see regulation 34 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)), to occur on the death; and

• (b) any liability to income tax arising under Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005 (deeply discounted securities) on a transfer which is treated as taking place by virtue of section 437(2) of that Act.

• (2) Where in determining the value of a person’s estate immediately before his death a liability for inheritance tax is taken into account, then, if that tax or any part of it is not in the event paid out of the estate, the value of the estate immediately before his death shall be treated as increased by an amount equal to that tax or so much of it as is not so paid.

Liability to make future payments, etc.

175

Where in determining the value of a person’s estate immediately before his death a liability to make payments or transfer assets under such a disposition as is mentioned in section 262 below is taken into account, the liability shall be computed as if the amount or value of the payments or assets were reduced by the chargeable portion (as defined in that section).

Related property etc-sales

176

• (1) This section has effect where, within three years after the death of any person, there is a qualifying sale of any property (“the property concerned”) comprised in his estate immediately before his death and valued for the purposes of this Act—

• (a) in accordance with section 161 above, or

• (b) in conjunction with property which was also comprised in the estate but has not at any time since the death been vested in the vendors.

• (2) If a claim is made for relief under this section the value of the property concerned immediately before the death shall be taken to be what it would have been if it had not been determined as mentioned in subsection (1) above.

• (3) For the purposes of subsection (1) above a sale is a qualifying sale if—

• (a) the vendors are the persons in whom the property concerned vested immediately after the death or the deceased’s personal representatives; and

• (b) it is at arm’s length for a price freely negotiated at the time of the sale and is not made in conjunction with a sale of any of the related property taken into account as mentioned in subsection (1)(a) above or any of the property mentioned in subsection (1)(b) above; and

• (c) no person concerned as vendor (or as having an interest in the proceeds of sale) is the same as or connected with any person concerned as purchaser (or as having an interest in the purchase); and

• (d) neither the vendors nor any other person having an interest in the proceeds of sale obtain in connection with the sale a right to acquire the property sold or any interest in or created out of it.

• (4) Subsection (2) above shall not apply unless the price obtained on the sale, with any adjustment needed to take account of any difference in circumstances at the date of the sale and at the date of the death, is less than the value which, apart from this section and apart from Chapter IV of this Part of this Act, would be the value of the property concerned determined as mentioned in subsection (1) above.

• (5) Where the property concerned consists of shares in or securities of a close company, subsection (2) above shall not apply if at any time between the death and the qualifying sale the value of the shares or securities is reduced by more than 5 per cent as a result of an alteration in the company’s share or loan capital or in any rights attaching to shares in or securities of the company; and for the purposes of this subsection—

• “alteration” includes extinguishment, and

• “close company” has the same meaning as in Part IV of this Act.

Scottish agricultural leases

177

• (1) Where any part of the value of a person’s estate immediately before his death is attributable to the interest of a tenant in an unexpired portion of a lease for a fixed term of agricultural property in Scotland then, subject to subsection (3) below, there shall be left out of account in determining that value any value associated with any prospect of renewal of the lease by tacit relocation.

• (2) Where any part of the value of a person’s estate immediately before his death is attributable to the interest of a tenant of agricultural property in Scotland, being an interest which is—

• (a) held by virtue of tacit relocation, and

• (b) acquired on the death by a new tenant,

then, subject to subsection (3) below, the value of the interest shall be left out of account in determining the value of that estate.

• (3) Subsections (1) and (2) above shall not apply unless the deceased had been tenant of the property in question continuously for a period of at least two years immediately preceding his death or had become tenant by succession.

• (4) The value to be left out of account by virtue of subsection (2) above shall not include the value of any rights to compensation in respect of tenant’s improvements.

CHAPTER III — SALE OF SHARES ETC. FROM DECEASED’S ESTATE

Preliminary

178

• (1) In this Chapter—

• “the appropriate person”, in relation to any qualifying investments comprised in a person’s estate immediately before his death, means the person liable for inheritance tax attributable to the value of those investments or, if there is more than one such person, and one of them is in fact paying the tax, that person;

• “the loss on sale” means the amount determined in accordance with section 179(1) below;

• “qualifying investments” means (subject to subsection (2) below) shares or securities which are quoted at the date of the death in question holdings in a unit trust which at that date is an authorised unit trust , shares in an open-ended investment company. . . and shares in any common investment fund established under section 42 of the Administration of Justice Act 1982;

• “relevant proportion”, in relation to the investments to which a claim relates, or any of them, means the proportion by which the loss on sale is reduced under section 180 below;

• “sale value”, in relation to any qualifying investments, means their value for the purposes of section 179(1)(b) below;

• “value on death”, in relation to any qualifying investments, means their value for the purposes of section 179(1)(a) below.

• (2) Shares or securities which are comprised in a person’s estate immediately before his death and in respect of which listingon a recognised stock exchange or dealing on the Unlisted Securities Market is suspended at that time shall be qualifying investments for the purposes of this Chapter if they are again so listed or dealt in . . . when they are sold as mentioned in section 179(1) below or exchanged as mentioned in section 184 below.

• (3) Any reference in this Chapter to the investments to which a claim relates is a reference to all the qualifying investments which, on the making of the claim, are taken into account under section 179(1) below in determining the loss on sale.

• (4) For the purposes of this Chapter—

• (a) the personal representatives of the deceased, and

• (b) the trustees of a settlement,

shall each be treated as a single and continuing body of persons (distinct from the persons who may from time to time be the personal representatives or trustees).

• (5) In any case where, for the purposes of this Chapter, it is necessary to determine the price at which any investments were purchased or sold or the best consideration that could reasonably have been obtained on the sale of any investments, no account shall be taken of expenses (whether by way of commission, stamp duty or otherwise) which are incidental to the sale or purchase.

The relief

179

• (1) On a claim being made in that behalf by the appropriate person there shall be determined for the purposes of this Chapter the amount (if any) by which—

• (a) the aggregate of the values which, apart from this Chapter, would be the values for the purposes of tax of all the qualifying investments comprised in a person’s estate immediately before his death which are sold by the appropriate person within the period of twelve months immediately following the date of the death exceeds

• (b) the aggregate of the values of those investments at the time they were so sold, taking the value of any particular investments for this purpose as the price for which they were so sold or, if it is greater, the best consideration which could reasonably have been obtained for them at the time of the sale.

• (2) Subject to the following provisions of this Chapter, in determining the tax chargeable on the death in question, the value of the investments to which the claim relates shall be treated as reduced by an amount equal to the loss on sale.

• (2A) A claim under this Chapter must be made not more than 4 years after the end of the period mentioned in subsection (1)(a).

• (3) A claim made by the appropriate person under this Chapter shall specify the capacity in which he makes the claim, and the reference in subsection (1) above to qualifying investments which are sold by him is a reference to investments which, immediately before their sale, were held by him in the capacity in which he makes the claim.

Effect of purchases

180

• (1) If a claim is made under this Chapter and, at any time during the period beginning on the date of the death in question and ending two months after the date of the last sale made as mentioned in section 179(1)(a) above, the person making the claim purchases any qualifying investments in the same capacity as that in which he makes the claim, the loss on sale of the investments to which the claim relates shall be treated for the purposes of section 179(2) above as reduced by the proportion which the aggregate of the purchase prices of all the qualifying investments so purchased bears to the aggregate of the values referred to in section 179(1)(b) above (or, if the aggregate of those purchase prices equals or exceeds the aggregate of those values, the loss on sale shall be extinguished).

• (2) If a claim is made under this Chapter by any person in a capacity other than that of personal representative or trustee—

• (a) subsection (1) above shall have effect in his case as if for the words “in the same capacity as that in which he makes the claim” there were substituted the words “otherwise than in the capacity of personal representative or trustee”, and

• (b) no account shall be taken under that subsection of any qualifying investments purchased by him unless they are of the same description as one of the qualifying investments to which the claim relates.

• (3) For the purposes of subsection (2) above, two investments, not being investments in an authorised unit trust or common investment fund, shall not be treated as of the same description if they are separately listedon a recognised stock exchange or separately dealt in on the Unlisted Securities Market and an investment in one authorised unit trust or common investment fund shall not be treated as of the same description as an investment in another authorised unit trust or common investment fund.

Capital receipts

181

• (1) For the purposes of section 179(1)(b) above, if—

• (a) at any time after the death in question (whether during or after the period of twelve months immediately following the date of the death) the appropriate person receives any capital payment or payments which is or are attributable to any qualifying investments comprised in the deceased’s estate immediately before his death, and

• (b) those investments are sold by him within that period,

the price for which those investments were sold or, as the case may be, the best consideration referred to in section 179(1)(b) shall be taken to be increased by an amount equal to the capital payment or, as the case may be, the aggregate of the capital payments, referred to in paragraph (a) above.

• (2) If the appropriate person receives or becomes entitled to receive in respect of any qualifying investments a provisional allotment of shares in or debentures of a company and he disposes of his rights, the amount of the consideration for the disposal shall be treated for the purposes of this section as a capital payment attributable to those investments.

• (3) In this section “capital payment”, in relation to any investment, does not include the price paid on the sale of the investment but, subject to that, includes any money or money’s worth which does not constitute income for the purposes of income tax.

Payment of calls

182

For the purposes of section 179(1)(a) above, if—

• (a) at any time after the death in question (whether during or after the period of twelve months immediately following the date of the death) the appropriate person pays an amount in pursuance of a call in respect of any qualifying investments comprised in the deceased’s estate immediately before his death, and

• (b) those investments are sold by the appropriate person within that period,

the value on death of those investments shall be the aggregate of the amount so paid and their value as determined apart from this Chapter.

Changes in holdings

183

• (1) This section applies in any case where, within the period of twelve months immediately following the date of the death in question, there occurs in relation to any qualifying investments comprised in the deceased’s estate immediately before his death (in this section referred to as “the original holding”) a transaction to which 127 of the 1992 Act applies, that is to say—

• (a) a reorganisation, within the meaning of section 126(1) of that Act; or

• (b) the conversion of securities within the meaning of section 132 of that Act; or

• (c) the issue by a company of shares or debentures in exchange for shares in or debentures of another company in such circumstances that section 135 of that Act applies; or

• (d) the issue by a company of shares or debentures under such an arrangement as is referred to in section 136 of that Act;

or any transaction relating to a unit trust scheme which corresponds to any of the transactions referred to in paragraphs (a) to (d) above and to which section 127 of that Act applies by virtue of section 99 of that Act.

• (2) Where this section applies, the holding of investments which, as the result of the transaction, constitutes a new holding within the meaning of section 126(1) shall be treated for the purposes of this Chapter as being the same as the original holding; and references in the following provisions of this section to the new holding shall be construed accordingly.

• (3) If the appropriate person gives, or becomes liable to give, as part of or in connection with the transaction concerned, any consideration for the new holding or any part of it, then, for the purposes of subsection (5) below, the value on death of the new holding shall be treated as the aggregate of—

• (a) the value on death of the original holding, and

• (b) an amount equal to that consideration,

and in any other case the value on death of the new holding shall be taken to be the same as the value on death of the original holding.

• (4) For the purposes of subsection (3) above, there shall not be treated as consideration given for the new holding or any part of it—

• (a) any surrender, cancellation or other alteration of any of the investments comprised in the original holding or of the rights attached thereto, or

• (b) any consideration consisting of any application, in paying up the new holding or any part of it, of assets of the company concerned or of any dividend or other distribution declared out of those assets but not made.

• (5) If, within the period referred to in subsection (1) above, the appropriate person sells any investments comprised in the new holding, the value on death of those investments shall be determined by the formula—

$$Vs(H—S)(Vs+Vr)$where—$

• Vs is the sale value of the investments,

• Vr is the market value at the time of the sale of any investments remaining in the new holding after the sale,

• H is the value on death of the new holding, and

• S is the value on death of any investments which were originally comprised in the new holding but have been sold on a previous occasion or occasions.

• (6) For the purposes of subsection (5) above the market value of any investments at any time means the value which they would (apart from this Chapter) have for the purposes of this Act if they were comprised in the estate of a person who died at that time.

Exchanges

184

• (1) If—

• (a) within the period of twelve months immediately following the date of the death in question, the appropriate person exchanges (with or without any payment by way of equality of exchange) any qualifying investments comprised in the deceased’s estate immediately before his death, and

• (b) the market value of those investments is at the date of the exchange greater than their value on death,

then, regardless of the nature of the property taken in exchange, they shall be treated for the purposes of this Chapter as having been sold at the date of the exchange for a price equal to that market value.

• (2) This section shall not apply in any case where the exchange falls within section 183(1) above; and section 183(6) shall apply for the purposes of subsection (1) above as it applies for the purposes of section 183(5).

Acquisition of like investments

185

• (1) If, at any time within the period of twelve months immediately following the date of the death in question, the appropriate person sells any investments which form part of a holding of investments which are all of the same description and consist of—

• (a) investments comprised in the deceased’s estate immediately before his death, and

• (b) investments acquired by the appropriate person, by purchase or otherwise, after the death but not in the circumstances in which section 183 above applies,

the investments so sold shall be apportioned for the purposes of this Chapter between those falling within paragraph (a) and those falling within paragraph (b) above in the same proportion as, immediately before the sale, the investments comprised in the holding and falling within paragraph (a) above bore to the investments so comprised and falling within paragraph (b) above.

• (2) For the purposes of this section, if the appropriate person holds investments of any description in the capacity of personal representative or trustee, the investments shall not be treated as forming part of the same holding as investments which, though of the same description, are held by him otherwise than in that capacity.

• (3) Section 180(3) above shall have effect for the purposes of this section as it has effect for the purposes of section 180(2).

Value of part of a fund

186

• (1) In any case where—

• (a) part only of a holding of qualifying investments is comprised in a person’s estate, and

• (b) investments included in that holding are sold by the appropriate person within the period of twelve months immediately following the date of the death,

this Chapter shall apply as if the entirety of the holding were comprised in the estate and, if a claim is made in respect of the investments referred to in paragraph (b) above, the taxable fraction of the value of the investments to which the claim relates, as determined under this Chapter, shall be the value of that part of those investments which is comprised in the estate.

• (2) In subsection (1) above, “taxable fraction” means the fraction of which the numerator is the value, as determined apart from this Chapter, of the part of the holding referred to in paragraph (a) of that subsection and the denominator is the value, as so determined, of the entirety of that holding.

Attribution of values to specific investments

187

• (1) This section shall have effect in determining the value for the purposes of this Act (and, accordingly, the market value for the purposes of capital gains tax under section 274 of the 1992 Act) of any investment (in this section referred to as a “specific investment”) which is included among the investments to which a claim relates.

• (2) Subject to the following provisions of this section, the value of a specific investment shall be its sale value.

• (3) Subject to the following provisions of this section, in a case where the calculation of the loss on sale of the investments to which a claim relates is affected by section 180 above—

• (a) if the value on death of a specific investment exceeds its sale price, the value of that investment shall be the aggregate of its sale value and an amount equal to the relevant proportion of the difference between its sale price and its value on death; and

• (b) if the sale price of a specific investment exceeds its value on death, the value of the investment shall be its sale value less an amount equal to the relevant proportion of the difference between its value on death and its sale price.

• (4) For the purposes of subsections (2) and (3) above, the sale value of a specific investment in respect of which an amount has been paid in pursuance of a call, as mentioned in section 182 above, shall be reduced by the amount so paid in respect of that investment.

• (5) In a case where, by virtue of subsection (3) of section 183 above, the value on death of the new holding, within the meaning of that section, includes an amount equal to the consideration referred to in that subsection, the sale value of any specific investment comprised in the new holding shall be reduced, for the purposes of subsections (2) and (3) above, by an amount which bears to that consideration the like proportion as the value on death of the specific investment sold bears to the value on death of the whole of the new holding.

• (6) In subsection (3) above “sale price”, in relation to a specific investment, means the price for which the investment was sold by the appropriate person or, if it is greater, the best consideration which could reasonably have been obtained for the specific investment at the time of the sale; and section 181 above shall apply for the purposes of this subsection as it applies for the purposes of section 179(1)(b).

Limitation of loss on sale

188

In any case where, apart from this section, the loss on sale of any investments—

• (a) in respect of which an amount has been paid in pursuance of a call as mentioned in section 182 above, or

• (b) which are sold as mentioned in section 183(5) above,

would exceed their value as determined apart from this Chapter, their sale value shall be treated for the purposes of sections 179(2) and 187 above as being of such an amount that the loss on sale would be equal to their value as so determined.

Date of sale or purchase

189

• (1) Subject to subsection (2) below, for the purposes of this Chapter where any investments are sold or purchased by the appropriate person the date on which they are sold or purchased shall be taken to be the date on which he entered into a contract to sell or purchase them.

• (2) If the sale or purchase of any investments by the appropriate person results from the exercise (whether by him or by any other person) of an option, then, for the purposes of this Chapter, the date on which the investments are sold or purchased shall be taken to be the date on which the option was granted.

CHAPTER IV — SALE OF LAND FROM DECEASED’S ESTATE

Preliminary

190

• (1) In this Chapter—

• “the appropriate person”, in relation to any interest in land comprised in a person’s estate immediately before his death, means the person liable for inheritance tax attributable to the value of that interest or, if there is more than one such person and one of them is in fact paying the tax, that person;

• “interest in land” does not include any estate, interest or right by way of mortgage or other security;

• “sale price”, in relation to any interest in land, means the price for which it is sold or, if greater, the best consideration that could reasonably have been obtained for it at the time of the sale;

• “sale value”, in relation to any interest in land, means its sale price as increased or reduced under the following provisions of this Chapter;

• “value on death”, in relation to any interest in land comprised in a person’s estate immediately before his death, means the value which, apart from this Chapter, (and apart from section 176 above) would be its value as part of that estate for the purposes of this Act.

• (2) Any reference in this Chapter to the interests to which a claim relates is a reference to the interests to which section 191(1) below applies by virtue of the claim.

• (3) For the purposes of this Chapter—

• (a) the personal representatives of the deceased, and

• (b) the trustees of a settlement,

shall each be treated as a single and continuing body of persons (distinct from the persons who may from time to time be the personal representatives or trustees).

• (4) In any case where, for the purposes of this Chapter, it is necessary to determine the price at which any interest was purchased or sold or the best consideration that could reasonably have been obtained on the sale of any interest, no account shall be taken of expenses (whether by way of commission, stamp duty or stamp duty land tax or otherwise) which are incidental to the sale or purchase.

The relief

191

• (1) Where—

• (a) an interest in land is comprised in a person’s estate immediately before his death and is sold by the appropriate person within the period of three years immediately following the date of the death, and

• (b) the appropriate person makes a claim under this Chapter stating the capacity in which he makes it,

the value for the purposes of this Act of that interest and of any other interest in land comprised in that estate and sold within that period by the person making the claim acting in the same capacity shall, subject to the following provisions of this Chapter, be its sale value.

• (1A) A claim under this Chapter must be made not more than 4 years after the end of the period mentioned in subsection (1)(a).

• (2) Subsection (1) above shall not apply to an interest if its sale value would differ from its value on death by less than the lower of—

• (a) £1,000, and

• (b) 5 per cent of its value on death.

• (3) Subsection (1) above shall not apply to an interest if its sale is—

• (a) a sale by a personal representative or trustee to—

• (i) a person who, at any time between the death and the sale, has been beneficially entitled to, or to an interest in possession in, property comprising the interest sold, or

• (ii) the spouse or civil partner or a child or remoter descendant of a person within sub-paragraph (i) above, or

• (iii) trustees of a settlement under which a person within sub-paragraph (i) or (ii) above has an interest in possession in property comprising the interest sold; or

• (b) a sale in connection with which the vendor or any person within sub-paragraph (i), (ii) or (iii) of paragraph (a) above obtains a right to acquire the interest sold or any other interest in the same land;

and for the purposes of this subsection a person shall be treated as having in the property comprised in an unadministered estate (within the meaning of section 91(2) above) the same interest as he would have if the administration of the estate had been completed.

Effect of purchases

192

• (1) This section applies where a claim is made under this Chapter and, at any time during the period beginning on the date of the death and ending four months after the last of the sales referred to in section 191(1) above, the person making the claim purchases any interests in land in the same capacity as that in which he makes the claim.

• (2) If the aggregate of the purchase prices of all the interests purchased as mentioned in subsection (1) above equals or exceeds the aggregate of the sale prices (as adjusted under sections 193 to 195 below) of all the interests to which the claim relates, this Chapter shall not apply in relation to the claim; but otherwise subsection (3) below shall have effect, and in that subsection “the appropriate fraction” means the fraction of which—

• (a) the numerator is the aggregate of the said purchase prices, and

• (b) the denominator is the aggregate of the said sale prices.

• (3) Subject to subsection (4) below, where this subsection has effect an addition shall be made to the sale price of every interest to which the claim relates; and the amount of the addition shall be equal to the appropriate fraction of the difference between the value on death of the interest and its sale price (as adjusted under sections 193 to 196 below).

• (4) Where the value on death of an interest is less than its sale price (as adjusted under sections 193 to 196 below) subsection (3) above shall apply as if it provided for a reduction instead of an increase in the sale price.

Changes between death and sale

193

• (1) Where the conditions mentioned in subsection (2) below are not satisfied in relation to any interest to which the claim relates then, subject to subsections (3) and (4) below, an addition shall be made to the sale price of the interest; and the amount of the addition shall be equal to the difference between—

• (a) the value on death of the interest, and

• (b) what that value would have been if the circumstances prevailing at the date of the sale and by reason of which the conditions are not satisfied had prevailed immediately before the death.

• (2) The conditions referred to in subsection (1) above are—

• (a) that the interest was the same in all respects and with the same incidents at the date of the death and at the date of the sale; and

• (b) that the land in which the interest subsists was in the same state and with the same incidents at the date of the death and at the date of the sale.

• (3) If after the date of the death but before the date of the sale compensation becomes payable under any enactment to the appropriate person or any other person liable for tax attributable to the value of the interest—

• (a) because of the imposition of a restriction on the use or development of the land in which the interest subsists, or

• (b) because the value of the interest is reduced for any other reason,

the imposition of the restriction or the other cause of the reduction in value shall be ignored for the purposes of subsections (1) and (2) above, but there shall be added to the sale price of the interest an amount equal to the amount of compensation.

• (4) Where the value on death of an interest is less than it would have been as mentioned in subsection (1) above, that subsection shall apply as if, instead of providing for an addition to be made to the sale price, it provided for that price to be reduced to what it would have been if the change in circumstances by reason of which the conditions mentioned in subsection (2) above are not satisfied had not occurred.

Leases

194

• (1) Where the claim relates to an interest which is the interest of a lessee under a lease the duration of which at the date of the death does not exceed fifty years, an addition shall be made to the sale price of the interest; and the amount of the addition shall be equal to the appropriate fraction of the value on death of the interest.

• (2) In subsection (1) above, “the appropriate fraction” means the fraction—

$$P(1)-P(2)P(1)$where—$

• P(1) is the percentage that would be derived from the Table in paragraph 1 of Schedule 8 to the 1992 Act for the duration of the lease at the date of the death, and

• P(2) is the percentage that would be so derived for the duration of the lease at the date of the sale.

Valuation by reference to other interests

195