Inheritance Tax Act 1984 section 262

Tax chargeable in certain cases of future payments, etc.

Section 262 deals with how inheritance tax is charged when someone makes a transfer of value for partial consideration, but the payments or asset transfers are spread over time and extend beyond one year after the original disposition.

• Where a disposition made for consideration results in a transfer of value and payments are made more than one year later, each later payment is treated as a separate transfer of value made without consideration at the time it occurs.
• Only the "chargeable portion" of each later payment is subject to tax — this represents the gratuitous (gift) element of the payment, not the portion that reflects genuine commercial consideration.
• The chargeable portion is calculated using a fraction: the numerator is the value actually transferred by the original disposition (ignoring tax), and the denominator is the total value at the time of the disposition of all payments and assets the transferor agreed to make or transfer.
• If the transferor dies with outstanding liabilities under the arrangement, section 175 restricts the deduction from the estate to the non-gratuitous portion only — the chargeable portion is effectively taxed by not being allowed as a deductible liability.