The deceased owned a retirement flat. There is a provision in the lease that on a disposal the seller has to pay to the Landlord .5% of the sale value per year of occupation up to a maximum of 5%. There is a deemed disposal if no sale within 12 months of death.
As this is a liability increasing over time within the lease itself, I would suggest that this is an appropriate deduction for IHT purposes?
I have also been dealing with the more common structure where there is no deemed disposal but a straight say 5% event fee only triggered on a disposal. Would this also be an appropriate deduction?
I would distinguish these from event fees triggered by when the Landlord actually sources a buyer from their own waiting lists where they are effectively an estate agent.
Blandy and Blandy LLP
If the payment is a contractual liability under the terms of the lease, then I agree it should be an allowable deduction for IHT purposes where there are no further conditions attaching to it.
However, where the payment is due only on a disposal, I suspect it would only be allowable for CGT purposes, rather than IHT (although that might depend upon the precise wording of the lease provision).
Where the lessor is entitled to the fee when it is effectively acting as selling agent, I cannot see that this would be treated as a deduction for IHT purposes, unless there was a binding contract for the sale of the flat at the time of death.
I have claimed a deduction of this sort for IHT purposes and it was allowed. It was a relatively small estate so that the amount of tax lost to HMRC was not great and it may be that if there were larger sums involved I might not have got away with it. However it seems to me that it is a contractually liability and it does effect the value of the property at the date of death and accordingly that it should be allowable.
Herrington Carmichael LLP