Inheritance Tax Act 1984 section 194

Leases

Section 194 requires an adjustment to the sale price when a claim for loss on sale relief involves a leasehold interest with fifty years or less remaining at the date of death, to reflect the natural wasting of the lease's value over time.

• The section applies only to leasehold interests where the lease has fifty years or fewer left to run at the date of death
• An addition must be made to the actual sale price to compensate for the natural decline in the lease's value between death and sale
• The addition is calculated as the "appropriate fraction" of the value of the lease at death, using the formula (P1 − P2) / P1
• P1 and P2 are percentages taken from the table in Schedule 8 to the Taxation of Chargeable Gains Act 1992, reflecting the lease's remaining duration at death and at sale respectively