'Valuation of the Whole' Approach to IHT Upheld by Tribunal

A family's eleven-year argument with HM Revenue & Customs (HMRC) over the valuation of a property for IHT purposes has finally been decided by the Tax Tribunal.

Mr Price's wife died in 1999, leaving her half share in the matrimonial home to her four children. The freehold value of the property with vacant possession was £1.5 million, but Mr Price claimed that his late wife’s share should be valued at a discount of at least 15 per cent. He also argued that the IHT valuation should be reduced to account for the potential costs of selling the property and the outstanding mortgage of £364,000.

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.

Click here for an explanation of how IHT works.