Valuation of property

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Valuation of property
  • The interrelation of the property valuation rules and the quantification of the tax base
  • The property valuation rules
  • The general valuation rule
  • The special valuation rules
  • Valuation of particular types of property
  • Valuation rules applicable only on death

Any inheritance tax (IHT) that may be payable is computed by reference to the value of the property transferred by a settlor. In order to do this, two values have to be distinguished. There are rules, known as valuation rules, which relate to both concepts.

The first value to be determined with reference to the valuation rules is the value of the property. In this case, the valuation rules value distinct pieces of property.

The property value, once determined, assists in the computation of the value of a transfer or a deceased estate. This is the amount by reference to which tax is charged. The valuation rules applicable to this value quantify the tax base (ie the amount by reference to which the tax itself is computed).

The interrelation of the property valuation rules and the quantification of the tax base

Transfers of property made during a settlor’s lifetime are computed by reference to the amount by which the value of his estate after the transfer is lower than the value of his estate before the transfer. This is known as the loss to the donor principle.

IHTA 1984, ss 1–3

The amount of the loss provides the tax base. This is the amount on which tax is charged. However, in order to calculate the amount of the loss, you have to be able to value the property in the settlor’s estate.

The estate charge arising on death is computed by reference to the value of the transferor’s estate immediately before his death. This is the aggregate of all the property that he owns at that time. Again, in order to calculate the amount of tax due, you have to be able to value the individual items of property comprised in that estate.

IHTA 1984, s 4

Having valued the transfer or the estate (employing the

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