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Example 1

Mr P gave his daughter £1,400,000 of cash which she used to purchase a painting, but he hangs it in his own house for safekeeping and to meet insurance requirements. During the year, under a legal agreement with his daughter, he pays her 1.25% of the value of the painting in respect of his enjoyment of the chattel. This price is based on an arm's length valuation. He also pays the insurance premium based on 1% of the value. Subject to possible exclusions and exemptions, the contribution condition is met. The value (V) of the painting at the valuation date for the year in question is £1,400,000. FA 2004, Sch 15, para 7(3)(a) applies, and DV is equal to V. The prescribed rate is 5%.

The appropriate amount is:

The insurance premium paid by Mr P does not qualify for deduction as it was not paid to the owner in respect of his possession or use of the chattel. The payment made by Mr P to his daughter is deductible, and the chargeable amount