The Charge to Income Tax by Reference to Enjoyment of Property Previously Owned Regulations 2005

Avoiding double charge

6.—(1) This regulation provides for the avoidance, to the extent specified, of double charges to tax arising in the circumstances specified (in paragraph (2)) for the purposes of paragraph (d) of section 104(1) of the Finance Act 1986 (being circumstances which appear to the Board to be similar to those referred to in paragraphs (a) to (c) of that subsection).

(2) The specified circumstances are—

(a) a person makes a transfer by way of gift—

(i) of property representing the proceeds of the disposal of relevant property,

(ii) by virtue of which property becomes comprised in a settlement,

(b) the transfer is or proves to be a chargeable transfer,

(c) the person dies on or after 6th April 2005 and within seven years of the transfer,

(d) the person made an election under paragraph 21 of Schedule 15 to the Finance Act 2004 (election for application of inheritance tax provisions) in relation to the relevant property,

(e) the relevant property—

(i) is by virtue of section 102(3) of the Finance Act 1986 treated for the purposes of the Inheritance Tax Act 1984 as property to which the person was beneficially entitled immediately before his death, or

(ii) ceased to be property subject to a reservation and became the subject of a potentially exempt transfer by virtue of section 102(4) of the Finance Act 1986, and

(f) the chargeable proportion of the relevant property—

(i) is comprised in the estate of the person immediately before his death within the meaning of section 5(1) of the Inheritance Tax Act 1984 and the value attributable to it is transferred by a chargeable transfer under section 4 of that Act, or

(ii) is property transferred by the potentially chargeable transfer to which sub-paragraph (e)(ii) applies, value attributable to which is transferred by a chargeable transfer.

(3) Where this regulation applies, there shall be calculated, separately in accordance with sub-paragraphs (a) and (b), the total tax chargeable as a consequence of the death of the person—

(a) disregarding so much of the value transferred by the transfer of value to which paragraph (2)(a) refers as represents the proceeds of the disposal of the relevant property to which paragraph (2)(f) refers, and

(b) disregarding so much of the value transferred by the transfer of value to which paragraph (2)(f) refers as is represented by property to which paragraph (2)(a) refers.

(4) Where the amount calculated under paragraph (3)(a) is higher than the amount calculated under (3)(b)—

(a) only so much of that higher amount shall be payable as remains after deducting, as a credit, from the amount comprised in the higher amount which is attributable to the value of the property to which paragraph (2)(f) refers, a sum (not exceeding the amount so attributable) equal to so much of the tax paid—

(i) as became payable before the person’s death, and

(ii) as is attributable to the value disregarded under paragraph (3)(a), and

(b) so much of the value transferred by the transfer of value to which paragraph (2)(a) refers as is attributable to the property to which paragraph (2)(f) refers shall (except in relation to chargeable transfers which were chargeable to tax, when made by the person, for the purposes of an occasion which occurred before the person’s death on which tax was chargeable under section 64 or 65 of the Inheritance Tax Act 1984 (charge at ten year anniversary and charge at other times in relation to settlements without interests in possession)) be treated as reduced to a nil amount for all the purposes of the Inheritance Tax Act 1984.

(5) Where the amount calculated under paragraph (3)(a) is less than the amount calculated under paragraph (3)(b) the value of the property to which paragraph (2)(f) refers shall be reduced to a nil amount for all the purposes of the Inheritance Tax Act 1984.

(6) In this regulation, “relevant property” and “the chargeable proportion” have the meanings given in paragraph 21 of Schedule 15 to the Finance Act 2004.