When a wife died in 1999, her will transferred her half share in the matrimonial home to her four children. Little could the family have suspected that eleven years later they would still be arguing with HM Revenue and Customs (HMRC) over the Inheritance Tax (IHT) liability on her estate.
The freehold value of the property with vacant possession was £1.5 million.
The woman’s husband argued that his late wife’s share should be valued with a discount of at least 15 per cent and that a further reduction should be made for the potential costs of sale of the property and for the outstanding mortgage of £364,000.
However, HMRC argued that for the purpose of valuing the transfer to the children, the property values must be aggregated. The first step, HMRC claimed, was to consider that the two half shares must be equal. Secondly, the total value of the two half shares must equal £1.5 million, since that was the open market value of the property at the date of death. Also, there should be no allowance for the hypothetical costs of selling the property.
The nub of the argument, therefore, was whether the two halves should be valued independently from one another or as one.
The judge ruled that HMRC’s interpretation of the relevant legislation was correct, saying, “What is required to be identified… is the ‘appropriate portion’, or part, of the value of the aggregate of the property comprised in the deceased’s estate and the related property, estimated on what those properties would fetch if offered together on the open market…”
Furthermore, the judge ruled that the mortgage could not be taken into account in determining the value of the property transferred, but would be taken into account in the valuation of the deceased’s estate generally.
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Partner Note
A Leolin Price CBE QC v Revenue & Customs [2010] UKFTT 474 (TC).