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What are the Related Property Rules For IHT Work

The related property rules says the interests of the spouses/civil partners are together worth more than the sum of their separate interests – the separate interests would normally be subject to a discount for joint ownership. To demonstrate the principle here, see the example below:

A private company with share capital of 10,000 shares, with Peter the dad owning 6,000 shares,  wife Jane 3,000 shares. Their son Tom owned the remaining 1,000 shares. The respective share values are given below:

Value per share       (£)

0 – 25%                 4 per share

26 – 50%              5 per share

51 – 74%              8 per share

75 – 100%            12 per share

Let us first measure Peter’s transfer of value using normal loss to donor rules (NOT TAKING RELATED PROPERTY RULES).

£ Value of shares before gift

(6,000 @ £8 each)                                                                             48,000

Value of shares after gift              (4,000 @ £5 each)            (20,000)

Loss to Donor                                                                                       28,000

However, where shares are held jointly between a husband and wife, we measure the loss to donor taking account of THE RELATED PROPERTY RULES.

The effect of the related property rules is to treat Peter and Jane’s shares as one asset for IHT purposes. When measuring Peter’s loss, we also take account of the shares held by Jane. This is done as below:

Value of shares before gift (6,000/9,000 x value of joint holding)

 6,000/9,000 x (9,000 x £12 each)                                                                                                                  72,000

Value of shares after gift 4,000/7,000 x (7,000 x £8 each)                                                                (32,000)

Loss to Donor                                                                                                                                                              40,000

Before the gift, Peter had 6,000 shares. Jane had 3,000 shares, so together their “related property” is 9,000 shares. Therefore, for IHT purposes, Peter is deemed to own 6/9ths of their joint shares.

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