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The value taxable on an IHTA84/S65 proportionate charge is

• the amount by which the value of relevant property comprised in the trust is less immediately after the event in question than it would be but for the disposition (IHTM04097)
• grossed up where the tax is not being paid out of the assets ceasing to be relevant property.

The ‘loss� basis is a reflection of the ‘loss to transferor� principle in lifetime transfers. This has led to the S65(2)(a) basis being described as a ‘loss to settlement� or ‘loss to trust�. That description is correct where the whole fund is held on discretionary trusts of relevant property, but you must be careful not to include any non-relevant or related funds. 

Example

A settlement holds 100 shares (100% control) in the Acme Investment Company Ltd. The trusts are two-thirds qualifying interest in possession, and one-third discretionary.   

The only relevant property in the settlement is the one-third share held on discretionary trusts. On distribution of the one-third discretionary share, the loss to the relevant property is only a 33.33% shareholding valued in isolation. 

Do not include non-relevant property in the ‘before� and ‘after� considerations. If the loss to settlement basis is used incorrectly, the absolute control holding of 100% would be valued ‘before�, and a 66.66% shareholding valued ‘after� to quantify the loss. That valuation would produce a higher chargeable value, but part of the loss is attributable to non-relevant property and is not correct.