Inheritance Tax and the valuation of property owned jointly by spouses or civil partners
28th November 2007
HMRC have published Revenue & Customs Brief 71/07, which deals with the valuation of property owned jointly by spouses or civil partners. The article discusses the application of section 161 of the Inheritance Tax Act 1984.
Section 161 of the 1984 Act provides that, when valuing a share of property for inheritance tax where the spouse or civil partner also has an interest in the same property, the spouse’s or civil partner’s interest is taken into account. This reduces the level of discount that might otherwise be attracted. HMRC have received advice on the application of the High Court decision Arkwright v Inland Revenue Commissioners [2004] EWHC 1720 (Ch), which decided that the question of the open market valuation was, in the absence of agreement between HMRC and the personal representatives, a matter for the Lands Tribunal. They have received legal advice that, contrary to the decision of the Special Commissioner in Arkwright (which was not appealed), section 161(4) may apply to fractional shares of units.
“Accordingly, HMRC will apply section 161(4) when valuing shares of land as related property in any inheritance tax case where the account is received by HMRC after the publication date of this Brief. We will consider litigation in appropriate cases.”
…
“Any existing cases in which section 161(4) is considered in point will therefore be dealt with on the basis of the Special Commissioners’ decision in the Arkwright case as it relates to the interpretation of section 161(4).
“HMRC will, when so requested, also reconsider any cases involving land valuations which were concluded after the Arkwright decision was handed down on 16 July 2004 and determined on the basis that section 161(4) applied.”
HMRC will also be reviewing the guidance that was given about the valuation of joint settlor discounted gift schemes in the Technical Note (which can be found here) and make appropriate changes in the light of any future developments. Until then they will continue to value schemes on the basis of the guidance in the Technical Note.
The article can be found here.
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