Diminution in value (UK inheritance tax)
For inheritance tax, the value transferred by a lifetime disposition is generally measured by the loss to the transferor’s estate: the value immediately after the disposition compared with what it would have been without it. It can include a reduction in the value of assets retained by the transferor, not just the market value received by the donee. Tax liabilities, exemptions and special statutory rules may affect the computation.
Worked example
Before a gift, a person’s affected shareholding is worth £400,000. Immediately after gifting part, the retained holding is worth £250,000. Assuming no other affected estate assets, consideration or tax liability, the loss to the estate is £150,000, even if the gifted shares alone are worth £110,000 to the recipient.
Common mistake
Using only the recipient’s value for the gifted asset when the transfer also reduces the value of the transferor’s retained holding.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | TX (UK) | Direct | June 2026–June 2027 |