IHTM14670 | Lifetime transfers: specific lifetime reliefs: interests in land: leases

From HM Revenue & Customs · Inheritance Tax Manual

You may need to make an adjustment to the market values () where the transferred property is a leasehold interest, having not more than fifty years to run at the time of the chargeable transfer.

In these circumstances you have to make an adjustment to the market value of the property transferred at the date of death or sale in accordance with .

You have to increase the value at the relevant date using the formula:

P(1) - P(2) ÷ P(1) × mv

mv is the market value at the time of the chargeable transfer.
P(1) and P(2) are the percentages derived from the table below (which comes from TCGA92/S8(1)) by reference to
- the length of the lease at the time of the chargeable transfer - P(1), and
- the length of the lease at the date of death or sale - P(2).

Years	Percentage

50 or more	100.000
49	99.657
48	99.289
47	98.902
46	98.490
45	98.059
44	97.595
43	97.107
42	96.593
41	96.041
40	95.457
39	94.842
38	94.189
37	93.497
36	92.761
35	91.981
34	91.156
33	90.280
32	89.354
31	88.371
30	87.330
29	86.226
28	85.053
27	83.816
26	82.496
25	81.100
24	79.622
23	78.055
22	76.399
21	74.635
20	72.770
19	70.791
18	68.697
17	66.470
16	64.116
15	61.617
14	58.971
13	56.167
12	53.191
11	50.038
10	46.695
9	43.154
8	39.399
7	35.414
6	31.195
5	26.722
4	21.983
3	16.959
2	11.629
1	5.983
	0.00

Example

Abdul transfers a lease having exactly four years to run on 31 December 2006 when it is worth £20,000. He dies on 31 December 2008, when the lease is worth £5,000. Under the table, P(1) is 21.983 and P(2) is 11.629.

For relief purposes, increase the £5,000 by

(21.983 - 11.629) ÷ 21.983 × £20,000 = £9,420

to £14,420.

If the duration of the lease is not an exact number of years, use the percentage for the whole number of years plus one twelfth of the difference between that and the percentage for the next highest number of years for each additional month, counting 14 days or more as one month.

Example

On 5 April 2004 Barbara transfers a lease expiring on 31 March 2019. It was worth £50,000 on that date. She died on 20 June 2008 when the lease was worth £35,000.

At the transfer date the lease had 14 years, 11 months and 25 days to run. This is taken to be 15 years so P(1) is 61.617.

At the date of death the lease had 10 years, 9 months and 11 days to run. This is taken to be 10 years and 9 months, so P(2) is calculated as:

Percentage for 10 years = 46.695, plus

Nine twelfths of the difference between the percentages for 10 and 11 years

(50.038 - 46.695) × (9 ÷ 12) = 2.507

So P(2) = 46.695 + 2.507 = 49.202.

For relief purposes you would increase the £35,000 by

(61.617 - 49.202) ÷ 61.617 × £50,000 = £10,074

to £45,074.

Note

Also consider whether the lease, being an interest in land, is subject to amendments for any changes () that have occurred during the relevant period