What is related property under section 161 of the Inheritance Tax Act 1984?

Related property includes property held by a person's spouse or civil partner, and property transferred within the last five years to a charity, qualifying political party, registered housing association, or certain national or public bodies, provided the original transfer was an exempt transfer made after 15 April 1976.

How is the appropriate portion calculated under the general rule in section 161?

Under the general rule in subsection (3), the combined unit of property is valued as a whole. That combined value is then apportioned between the person's own property and the related property in proportion to their separate standalone values, as though each piece of property were valued independently of the other.

How does the special rule for shares work under section 161?

The special rule in subsection (4) apportions the combined value of shares of the same class based on the number of shares held, rather than their separate standalone values. This avoids anomalies where per-share value varies with holding size, such as minority versus majority holdings in private companies.

Can relief be claimed if property valued under the related property rule is sold for less after death?

Yes. Where property included in the death estate was valued using the related property rule and is subsequently sold within three years of death for a lower price, the personal representatives may claim relief under section 176 to substitute the actual sale price for inheritance tax purposes.

Inheritance Tax Act 1984 section 161

Related property

Section 161 sets out rules for valuing property in a person's estate where there is other "related property" that, when combined with it, produces a higher aggregate value than valuing the property on its own.

Where related property exists, the value of a person's property is uplifted to the "appropriate portion" of the combined value of both the person's property and the related property, if that gives a higher figure than valuing the property in isolation.
Related property includes property held by a spouse or civil partner, or property transferred within the last five years to a charity, qualifying political party, registered housing association, or certain national or public bodies, provided the original transfer was exempt.
The appropriate portion is calculated either by a general rule (apportioning the combined value according to the separate standalone values of each property) or, for shares of the same class and similar assets, by a special rule based on the number of shares rather than their separate values.
If property valued under the related property rule on death is subsequently sold within three years for less than the related property valuation, the taxpayer may be able to claim relief under section 176.

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