Large inheritance-tax bills can be difficult when most of an estate consists of property. Bridging loans or sales may be needed before beneficiaries receive the estate.
Executors instead place a Location Value Covenant on estate properties. The owner of each property pays government a continuing amount calculated as a fair settlement of the inheritance-tax liability.
Worked example
Sir James St’John leaves a £5 million estate including two London properties and a country estate. His executors face an illustrative £1,875,200 tax bill without available cash. They agree annual covenants of £28,128 on each London property and £56,256 on the country estate, all linked to local rental values. The estate is then released.
| Property | Legacy value | Value with covenant | Annual covenant |
|---|---|---|---|
| London property 1 | £1,200,000 | £730,000 | £28,128 |
| London property 2 | £1,100,000 | £630,000 | £28,128 |
| Country estate | £2,100,000 | £1,160,000 | £56,256 |
| IHT liability | £1,875,200 now | — | £112,512 total |
How value is transferred
Each property’s value falls to reflect its covenant, allowing a purchaser to use less debt even though total annual ownership cost remains broadly equivalent. The exact site valuation is less important than payments moving with local rental values.
The original briefing considered elective or mandatory adoption. The wider LVC proposition on this site is voluntary.
Financial values, rates and tax references restyle the original policy example. They explain the proposed mechanism and are not current financial, tax or legal advice.