I3.736 Exemption for property in the estate
There is no pre-owned assets charge on land, chattels or intangible property where the taxpayer's estate for inheritance tax purposes includes:
• the relevant property, or
• other property which derives its value from the relevant property and whose value, so far as attributable to the relevant property, is not substantially less than the relevant property1. The term 'substantially' is not defined, but HMRC guidance states that 'substantial' is 'more than 20%'2
It is considered that the reference to property whose value derives from the relevant property would include shares in a company owning the relevant property.
This exemption recognises that the pre-owned assets charge should not penalise taxpayers in respect of their enjoyment of property that is still included in their estate for inheritance tax purposes.
Mr H owned a holiday home. In 1998 he gave the house to his mother. She lived there until her death in 2003, when she bequeathed the property back to Mr H. He has now resumed using it as a holiday home.
Mr H occupies land which he used to own, so the disposal condition could be met by virtue of FA 2004, Sch 15, para 3(2). However, the relevant land is included in his estate for inheritance tax, so he is exempt from a pre-owned assets charge.
Where the taxpayer's estate for inheritance tax purposes includes property which derives its value from the relevant property and whose value, so far as attributable to the relevant property, is substantially less