Finance Act 1966

42 Gifts inter vivos, etc.: relief from estate duty and other tax.

(1) If any property comprised in a gift inter vivos, and not settled by the gift, is deemed for the purposes of estate duty to pass on a death and capital gains tax or corporation tax is chargeable on a chargeable gain accruing on a disposal by the donee or his personal representatives of an asset which is for the time being comprised in the gift, and which has not been settled by the donee, being a disposal—

(a) effected before the death, and

(b) if the principal value of the property is to be ascertained at an earlier time, effected at or before that earlier time,

the principal value of the property for the purposes of estate duty on the death shall be reduced by the amount of that tax, and that reduction shall be made before any reduction of that value under section 64 of the [1960 c. 44.] Finance Act 1960 (graduation of charge by reference to period between gift and death).

(2) If any property ceasing to be settled property is by virtue of subsection (8) proviso or subsection (12) proviso of section 38 of the [1957 c. 49.] Finance Act 1957 to be treated as comprised in a gift inter vivos deemed for purposes of estate duty to pass on a death, or as the case may be as comprised in property in which an interest within section 43 of the Finance Act 1940 subsisted, and capital gains tax is chargeable on a chargeable gain accruing on the disposal under section 25(3) of the [1965 c. 25.] Finance Act 1965 deemed to be effected by the trustee of the settlement on the occasion of the property ceasing to be settled property, the principal value of the property for the purposes of estate duty on the death shall be reduced by the amount of that tax, and that reduction shall be made before any reduction of that value under section 64 of the [1960 c. 44.] Finance Act 1960.

(3) Where—

(a) an asset comprised in a gift inter vivos is deemed for purposes of estate duty (including estate duty in Northern Ireland) to pass on a death, and at the time of the death the asset is owned by the donee or is property settled by the gift, or property which by virtue of section 38(9) of the [1957 c. 49.] Finance Act 1957 is treated for the purposes of that section as property settled by the gift, and

(b) the principal value of the asset for the purposes of estate duty on the death (without any reduction under subsection (1) above and without any reduction under section 64 of the Finance Act 1960) exceeds the sums within paragraphs (a) and (b) of paragraph 4(1) of Schedule 6 to the Finance Act 1965 which, if the donee had disposed of the asset at the time of the death, would have been allowable in computing the amount accruing on that disposal,

a part of any estate duty payable in respect of that asset on the death shall be treated for the purposes of Part III of the Finance Act 1965 as if it were an amount of expenditure incurred by the donee on the asset and falling within the said paragraph 4(1)(b); and that part shall be the proportion of the duty which the said excess bears to the said principal value.

(4) References in this section to any amount of capital gains tax or corporation tax are references to the amount which would not have been payable if the relevant asset had not been disposed of, and, if any part of the chargeable gain accruing on a disposal within subsection (1) or subsection (2) of this section is not chargeable to capital gains tax or corporation tax in the year of assessment or accounting period in which it accrues because of relief for losses accruing in that or any earlier year or accounting period, the amount of tax in respect of that part of the chargeable gain shall be the tax which would have been charged on that part of the gain if it had been the only gain accruing in the year or accounting period and had all been chargeable.

(5) This section has effect as respects capital gains tax for the year 1965-66 and later years of assessment and applies in relation to deaths and disposals at any time before or after the passing of this Act.