IHT discount on jointly owned (and occupied) property: 10% or 15% ?

CalvinHobs
CalvinHobs Posts: 61 Forumite
Fifth Anniversary 10 Posts Name Dropper
edited 21 February at 3:41PM in Deaths, funerals & probate
Apologies up front for the long post...

My partner died in Jan 2024. We were not married nor in a civil partnership. The value of her estate is above £325,000 so IHT is payable. I am the executor of her estate.

We jointly owned our residence (50/50, joint tenants) in England, where I continue to live. Neither of us owned / own any other properties.

According to HMRC rules, a 10% reduction is applied to the deceased's share of a jointly owned property. However, if the surviving co-owner continues to live in the property, as their main residence, then the value of the deceased's share is reduced by 15%. The relevant section of the Inheritance Tax Manual states:

18.4 Half share, joint owner occupiers

Where at the valuation date any co-owner remains in occupation of the property, as their main residence, (other than the co-owner whose share is being valued) the normal approach is to take half the freehold vacant possession value and deduct 15%. This approach is in accordance with the Lands Tribunal decision of Wight and Moss v CIR (264/935/82) full details of which are at paragraph 9 of Practice Note 2.

https://www.gov.uk/guidance/inheritance-tax-manual/section-18-undivided-shares

In July 2024, I completed an IHT400 for the estate - including form IHT404 - Jointly Owned Assets. The HMRC Guide to completing your Inheritance Tax account - on page 25 - states:
To give us a starting point, you may reduce the arithmetical share of the value of the whole of the property by 10%. This will give us an indication of the value of the share of the property. This figure of 10% is only to give us a starting point. The amount of the discount... may need to be changed after the grant has been issued.

https://assets.publishing.service.gov.uk/media/66f6bb42e84ae1fd8592eab5/IHT4002022_Notes.pdf

So I followed the Guide and reduced my late partner's share by 10% on IHT404. I included a covering letter to HMRC stating that a 15% discount is applicable in this scenario and I asked them to apply the 15% discount.

In Jan 2025, HMRC sent me an IHT calculation. Their valuation of the property was the same as the IHT404, i.e. they used a discount of 10% rather than 15%. The difference is an additional £5000 additional IHT so I need to get this resolved.

I called the IHT helpline to query it. The operative said "We only ever apply a discount of 10% - it's what it says in our operating procedure". When I quoted para 18.4 of the IHT Manual, he said "I have never heard of a 15% discount. Perhaps you know something I don't"

He said to put it in writing and send it in - so I sent it Next Day delivery. This was a month ago and no reply as yet. Earlier this week, I called the IHT helpline and they said "20 working days" before they even look at it. They said it will need to be referred to the District Valuer.

My questions:

Why does the IHT Guide say to put a 10% discount - even in situations where it is clear a 15% discount is applicable?

Why does the IHT Manual state a 15% discount is applicable in certain situations - but people who work at HMRC are unaware of this?

Why would this need to be referred to the District Valuer for a decision when para 18.4 of the IHT Manual is perfectly clear?

Does anyone have experience of this?

If in doubt... do nowt.

Comments

  • CalvinHobs
    CalvinHobs Posts: 61 Forumite
    Fifth Anniversary 10 Posts Name Dropper
    edited 31 March at 1:39PM

    Just because it says that in a particular decided case a 15% discount was determined to be appropriate doesn't mean that it is appropriate to your partner's estate.  Also, there is a question of what the 15% is discounted from.  If you say the value of the undivided whole is, say £800,000 then HMRC may well ask the District Valuer to comment on both bits (i.e. whether the £800,000 is appropriate and whether the 15% is appropriate).  They ask the DV to do this because HMRC does not have the expertise do value lands where as the DV does.  
    Thank-you for your reply. I understand not all cases are the same but, to my mind, there is an inconsistency here:

    HMRC accept the principle that jointly owned assets can be more complex to dispose of (on the death of a co-owner) hence the 10% discount.

    They also accept, due to legal precedent, where a co-owner continues to live in a property as their main residence, it can create further difficulties when selling - hence the additional 5% discount.

    The IHT Guide states to put 10% as a "starting point" and HMRC will work out the true discount. Yet according to the HMRC operative, this is not included in their operating procedure. So it appears HMRC just calculated the IHT using the figures on the IHT400 I submitted.

    It seems to me HMRC are missing out a step if they are simply pushing cases through with a 10% discount.

    Btw, I corrected a mistake in my original post - the true difference in IHT is 40% of £12,500 = £5,000.
    If in doubt... do nowt.
  • Keep_pedalling
    Keep_pedalling Posts: 20,167 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    edited 31 March at 1:39PM

    Just because it says that in a particular decided case a 15% discount was determined to be appropriate doesn't mean that it is appropriate to your partner's estate.  Also, there is a question of what the 15% is discounted from.  If you say the value of the undivided whole is, say £800,000 then HMRC may well ask the District Valuer to comment on both bits (i.e. whether the £800,000 is appropriate and whether the 15% is appropriate).  They ask the DV to do this because HMRC does not have the expertise do value lands where as the DV does.  
    Thank-you for your reply. I understand not all cases are the same but, to my mind, there is an inconsistency here:

    HMRC accept the principle that jointly owned assets can be more complex to dispose of (on the death of a co-owner) hence the 10% discount.

    They also accept, due to legal precedent, where a co-owner continues to live in a property as their main residence, it can create further difficulties when selling - hence the additional 5% discount.

    It can do, but if the occupying co owner is also the person inheriting the property it will actually make things easier, as you just gave a sole owner occupier. You could even argue that in those circumstances there is no financial reason why any discount should apply. 
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