IHTM42162 | Relevant property: capital and income

Capital

Value the assets at their open market value.

You should value a distribution or disposition subject to a proportionate charge on a ‘loss to the settlement’ basis. (IHTM42119)

Capital change

Further additions of property may have been made by the settlor. If worthwhile, find out the reason for a substantial increase in the value of a fund at the date of distribution.

Income

When income is accumulated it is converted to capital at that date. It becomes relevant property and is within the charge to inheritance tax. As it becomes capital at a date later than the settlement date, accumulated income invariably attracts relief under IHTA84/S66 (2).

Where income on hand has not been accumulated, it is undistributed income. This it is not capital, and it is not relevant property, It is excluded from any inheritance tax charge and is usually not included in the IHT100. However, the position is different where the ten year charge arises on or after 6 April 2014 (IHTM42166)

IHTM42224 contains more information about powers of accumulation.

TYA reliefs for additions

Relief under IHTA84/S66 (2) is given on the tax payable on property obtained out of accumulated income. So, if that property qualifies for 100% agricultural relief or business relief in full then no S66(2) relief can be given on that particular item, as no tax is payable.

If the accumulated income has been spent on existing relevant property, relief can only be given on the amount of the uplift in value of the property purchased by the income.