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Review Your SQE 1 Practice Records

Examination Timing: 00H00M34S

A leasehold flat was owned by a brother and sister as tenants in common in equal shares. The sister died last month and under the terms of her will, the whole of her estate is given to her adult daughter absolutely. It is estimated that the flat is worth £200,000 as a very similar flat in the same block sold for that figure last month. The sister’s estate will be subject to Inheritance Tax (IHT). If the estimated worth of the flat is correct, what will be the value of the sister’s half share for IHT purposes?

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When valuing a share in jointly owned property for IHT purposes, a discount is often applied to reflect the fact that the interest is a minority share and may be less marketable or harder to sell than the whole property. This is known as a "discount for co-ownership." In this case, the flat was owned by the brother and sister as tenants in common, meaning they each owned distinct shares in the property. The sister’s half share would be valued at £100,000, but because the flat was co-owned, a percentage discount is applied to account for the difficulties associated with selling a partial interest. This discount acknowledges that a buyer would not be purchasing full control over the property, thus reducing its value. 

Key Point: For IHT purposes, the value of a co-owned property interest is typically discounted to reflect the challenges of selling a minority share. This discount can vary but generally acknowledges that such interests are less attractive to potential buyers due to the lack of full control over the property.

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