Is it possible for me to deduct this £80,000 amount from the value of the house for inheritance tax purposes?
My mother recently passed away and has left me her house, which is valued at £400,000. I understand her nil-rate band for inheritance tax (IHT) is £325,000 so I'm liable for 40% of £75,000 for IHT. She had no other assets. I have lived with her in this house for eleven years, and eight years ago I paid for a £80,000 two-storey extension. Is it possible for me to deduct this £80,000 amount from the value of the house for IHT purposes?

Arthur Weller replies:

In essence, what you are claiming is that although the house was entirely in your mother's name, she was the 100% legal owner, nevertheless you owned (at least) 20% of the beneficial ownership of the property, by virtue of the fact that you paid for it, and jointly occupied the property together with your mother. If you look at www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230 you can see that according to the criteria listed there you have a good argument. I would advise you to do as you have written (deduct the £80,000), but explain to HMRC what you are doing (quoting CG70230) so that they cannot question you later.


This question was first printed in Property Tax Insider in April 2017.

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