IHTM33163 - Purchases: example of how to adjust the sale price


X is the life tenant of a settlement comprising Blackacre, Whiteacre and Greenacre plus various other investments.

After the life tenant’s death the trustees carry out the following actions

  • they grant a depreciatory lease of Blackacre (had this been in place at the death the value would have been reduced to £36,000)
  • they demolish the porch at Whiteacre (without that porch the value at the death would have been reduced to £49,000)
  • they exchange Greenacre for quoted securities at a time when its value is £22,000
  • they purchase Blueacre for £17,200.

Example

 Blackacre (£)Whiteacre (£)Total (£)
1.Value on death ( IHTM33100)[D]40,000[D]50,000
2.Sale price ( IHTM33072)

IHTA84/S193 adjustments for changes in the interest or underlying land (IHTM33120)

30,000

 

+4,000

34,000

51,000

 

+1,000

52,000

 

 

 

[B]86,000
3.IHTA84/S196 adjustments (Note 1) arising from exchange ( IHTM33150) of Greenacre+ 1,500

[S]35,500

+ 500

[S]52,500

4.IHTA84/S192 adjustment (Note 2) for purchase ( IHTM33161) of Blueacre+900-500
5.Fully adjusted ‘sale value’ ( IHTM33073)36,40052,000

Note 1

Greenacre

    Value on death                         20,000

    Value at exchange                    22,000

    Excess                                    2,000

Adjustments are

Blackacre

2,000/8000 x (40,000 – 34,000) = £1,500

Whiteacre

2,000/8000 x (52,000 – 50,000) = £500

Note 2

Purchase of Blueacre £17,200 [A]

Using the formula as at IHTM33162 of (A/B) x (D-S), the adjustments are

17,200/86,000 x (40,000 – 35,500) = £900 (to be added to the sale price of Blackacre)

and

17,200/86,000 x (50,000 – 52,500) = £500 (to be deducted from the sale price of Whiteacre)

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