Where a beneficiary is entitled to a qualifying interest in
possession in part of a fund the value for tax is the proportion of
capital that is reflected by his share of the income (if any) over
the whole income produced by the fund - IHTA84/S50 (1) and (2).
Where the beneficiary is not entitled to any income of the
property but is entitled, jointly or in common with others, to the
use and enjoyment of the property, his taxable interest shall be
taken to subsist in such part of the property as corresponds to the
proportion which the annual value of his interest bears to the
total of his interest and all other interests in the property - S50
(5).
A distinction needs to be drawn:
In the first case, S50(1), (2) and (5) apply, as appropriate, so
that the property to be valued is the share itself, with any
appropriate discount for joint ownership.
But in the second case S52 (4)(a) provides that ‘the
tax chargeable under this section on the coming to an end of part
of an interest shall be charged as if the value of the property (or
part) in which the interest subsisted were a corresponding part of
the whole.’
Example:
(1) A beneficiary has a qualifying interest in possession in
a half share of realty Greenacre, with an entirety value of
£400,000. He terminates his interest in the half share. The
value to be taxed is a half share with a discount for joint
ownership thus -
£400,000 less (say) 10% = £360,000 x 50% =
£180,000 taxable.
(2) The beneficiary as above terminates half of his interest
in the share
The result is - £180,000 x 50% = £90,000 taxable. A
further joint property discount is not allowable.
S52 (4) does not apply to claims on death, as the whole of
the beneficiary’s qualifying interest [whatever proportion of
the whole it might be] must terminate on death.
