First Registration of a property at HM Land Registry and Inheritance Tax
Land Registry has recently published guidance explaining when and why an entry might be made in its register in relation to an Inheritance Tax charge (“IHT charge”).
Rule 35(1) Land Registration Rules 2003, requires the registrar to enter notice in the register of any interest which appears to affect the registered estate and this includes notice of a charge for any inheritance tax (or interest on the tax) which might be due.
Where tax on a chargeable transfer of land (or interest on the tax) is unpaid, HM Revenue and Customs is entitled to a charge on any property comprised in the deceased’s estate. Where a property forming part of the estate is transferred for value then the property is not transferred subject to the IHT charge; however, where the property is assented or gifted (that is, not for valuable consideration) then it passes to the recipient subject to the IHT charge.
There may be circumstances where an IHT liability arises, even if the value of the deceased’s estate is below the maximum exempt threshold; the registrar is not in a position to know what percentage of any exempt threshold may have been used up or transferred, or what other circumstances (for example, a deed of variation of a will, or gift with a reservation) might have affected the tax position.
Situations where the IHT charge may arise include when the property passes on a death and when the donor of a lifetime gift dies within 7 years of making the gift.
An IHT charge is protectable by registration of a D(i) land charge under the Land Charges Act 1972 and where such a registration exists Land Registry will make the following register entry on first registration of the property unless evidence of discharge is supplied:
Land Charges registration number [….] dated [date] protecting a Land Charge Class D(i) in respect of inheritance tax against [Name]. No further particulars were supplied on first registration.
Where the application for first registration is not founded on a disposition for value, for example, an assent or transfer by way of gift, Land Registry has to consider whether there may be any liability for IHT, irrespective of any land charge registration. If it appears from the application that the property may be subject to an IHT charge, Land Registry will write to the customer asking for written confirmation that either no IHT was ever payable, or that it has been paid in full.
Applicants for first registration can avoid an entry being made in the register or a Land Registry enquiry about any IHT charge by providing evidence that either the land charge has been cancelled, or that inheritance tax is not payable or has been paid in full. Land Registry will accept written confirmation of either fact provided by HM Revenue and Customs.
Further information about this can be found in Land Registry’s Practice Guide 1 — First registrations available on GOV.UK.