UT (Tax & Chancery) UT/2023/000079 UT/2023/000109 - [2025] UKUT 00059 (TCC)

Part 1 of the IHTA 1984 includes the main charges and definitions. Section 1 charges inheritance tax on the value transferred by a chargeable transfer. Section 3 provides that a transfer of value is a disposition made by a person as a result of which the value of his or her estate immediately after the disposition is less than it would be but for the disposition. Section 3(1) provides that, “[subject] to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer.”

Section 4(1) provides that, “[on] the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.”

Section 5 sets out the meaning of the word “estate” and provides, so far as relevant, as follows:

“5(1) For the purposes of this Act a person's estate is the aggregate of all the property to which he is beneficially entitled…

(3)

In determining the value of a person's estate at any time his liabilities at that time shall be taken into account, except as otherwise provided by this Act…

(5)

Except in the case of a liability imposed by law, a liability incurred by a transferor shall be taken into account only to the extent that it was incurred for a consideration in money or money's worth.”

Part 3 contains provisions dealing with settled property, Chapter 2 of which relates to interests in possession, reversionary interests and settlement powers. Within that Chapter, s49(1) provides as follows:

“49(1) A person beneficially entitled to an interest in possession in settled property shall be treated for the purposes of this Act as beneficially entitled to the property in which the interest subsists.”

Part 6 contains provisions dealing with valuation. Section 160 provides:

“160 Except as otherwise provided by this Act, the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.”

Section 162 provides, so far as relevant:

“162(1) A liability in respect of which there is a right to reimbursement shall be taken into account only to the extent (if any) that reimbursement cannot reasonably be expected to be obtained…

(4)

A liability which is an incumbrance on any property shall, so far as possible…, be taken to reduce the value of that property.”

Section 103 FA 1986 is headed “Treatment of certain debts and incumbrances” and provides, so far as relevant, as follows:

“103(1) Subject to subsection (2) below, if, in determining the value of a person's estate immediately before his death, account would be taken, apart from this subsection, of a liability consisting of a debt incurred by him or an incumbrance created by a disposition made by him, that liability shall be subject to abatement to an extent proportionate to the value of any of the consideration given for the debt or incumbrance which consisted of -

(a)

property derived from the deceased; or

(b)

consideration (not being property derived from the deceased) given by any person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased….

(3)

In subsections (1) and (2) above “property derived from the deceased” means, subject to subsection (4) below, any property which was the subject matter of a disposition made by the deceased, either by himself alone or in concert or by arrangement with any other person or which represented any of the subject matter of such a disposition, whether directly or indirectly, and whether by virtue of one or more intermediate dispositions…

(6)

Any reference in this section to a debt incurred is a reference to a debt incurred on or after 18th March 1986 and any reference to an incumbrance created by a disposition is a reference to an incumbrance created by a disposition made on or after that date;.....”