IHTM09776 | Restrictions on the freedom to dispose of assets: contracts made before 27 March 1974
From HM Revenue & Customs · Inheritance Tax Manual
If the contract was entered into before 27 March 1974 the property (IHTM04030) is valued with the restriction in place unless the first ‘relevant event’ (IHTM09773) is a transfer on death, IHTA84/S163 (2).
Example 1
On 20 March 1974, A grants B an option to purchase Blackacre in 15 years time for £20,000.
The 1974 value of Blackacre was £13,000, so the option clearly had a value.
A retains Blackacre until B exercises the option. At that time Blackacre was worth £150,000.
In view of IHTA84/S163 (2) the restriction is not ignored, despite the absence of consideration. The sale is not a transfer of value because
the property is treated as being worth £20,000, and
the purchase price paid was £20,000.
Example 2
The facts are as in example 1, but in 1985 A gives the property, subject to the option to his daughter C. For the purposes of that transfer the property is valued subject to the option, IHTA84/S163 (2).
C dies in 1988. Again the property is valued subject to the option as the death of C is not the first relevant event.