HM Revenue and Customs Brief 71/07
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Issued 27 November 2007
Inheritance Tax and the valuation of property owned jointly by spouses or
In general terms Section 161 Inheritance Tax Act 1984 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 spouseís or civil
partnerís interest is taken into account. The effect is broadly to reduce the
level of discount that smaller, un-aggregated shares of property can attract
when valued. The precise basis on which this is done was the subject of
litigation during 2004 and resulted in the High Court decision Arkwright and
another v Inland Revenue Commissioners  EWHC 1720 (Ch).
The appeal had earlier been considered by the Special Commissioners who found
that the Revenue could not rely on section 161(4) in the case of incorporeal
shares of land. Section 161(4) requires the aggregate value to be apportioned in
accordance with the proportion the smaller number of shares are held to the
total held by both spouses/civil partners. The Special Commissioner found that
whilst the measure could apply to property which had a distinct or individual
existence as a unit, such as unit trusts or a set of furniture (for example
twelve dining chairs), it did not apply to fractions of units. The Revenue did
not pursue this point when its appeal was heard by the High Court.
HMRC treatment of existing and future cases
The High Court 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.
In the course of seeking to reach agreement HMRC has received legal advice
that section 161(4) may, in fact, 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
It is now not possible to have further judicial consideration of the section
161(4) point in the context of the Arkwright decision. Any existing cases in
which section 161(4) is considered in point will therefore be dealt with on the
basis of the Special Commissionersí 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.
If you believe a valuation was concluded on this basis and wish to have the
matter reconsidered, you should write to
HMRC Inheritance Tax
P O Box 38
Castle Meadow Road
Please state the name of the deceased, transferor or settlement and quote the
official reference. To assist us, please also refer to this Brief in the heading
to your letter.
Discounted Gifts Schemes
We will review the guidance we give about valuation of joint settlor schemes
in the Technical Note (PDF 45K) - http://www.hmrc.gov.uk/cto/dgs-tech-note.pdf
and make appropriate changes in the light of any future developments. Until then
we will continue to value schemes on the basis of the guidance in the note.
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© Crown Copyright 2007.
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Article Published/Sorted/Amended on Scopulus 2007-11-29 22:12:57 in Tax Articles