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U.K.

Inheritance Tax Act 1984

1984 CHAPTER 51

An Act to consolidate provisions of Part III of the Finance Act 1975 and other enactments relating to [F1inheritance tax].

[31st July 1984]X1X2

Editorial Information

X1 By Finance Act 1986 s. 100(1), on and after 25 July 1986 the Capital Transfer Tax Act 1984 may be cited as the Inheritance Tax Act 1984.

X2This Act is based on material edited by the Inland Revenue and the style of editing for effects prior to 1.2.1991 differs from most Acts on the Statute Law Database.

Textual Amendments

F1 By Finance Act 1986 s. 100(1), on and after 25 July 1986 the Capital Transfer Tax Act 1984 may be cited as the Inheritance Tax Act 1984.

Modifications etc. (not altering text)

C1Act modified (1.11.2004 with effect as mentioned in reg. 1 of the amending S.I.) by The Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (S.I. 2004/2543), reg. 7(2)

C2Act modified (with effect in accordance with s. 195(12) of the amending Act) by Finance Act 2003 (c. 14), s. 195

C3Act amended (1.5.1995 with effect in relation to transfers of value or other events occuring on or after 6.4.1995) by 1995 c. 4, s. 154(2)(3)(5)

Act modified (31.7.1998 with effect as mentioned in s. 161 of the amending Act) by 1998 c. 36, s. 161(2)(c)

C5Act applied (17.7.2014) by Finance Act 2014 (c. 26), ss. 223(8)(9)(c)

Commencement Information

I1Act wholly in force at 1.1.1985 see s. 274(1).

PART IU.K. GENERAL

Main charges and definitionsU.K.

1 Charge on transfers.U.K.

[F2Inheritance tax] shall be charged on the value transferred by a chargeable transfer.

Textual Amendments

F2 See Finance Act 1986 s. 100(1)and (2)—for any liability to tax arising on and after 25July 1986any reference in the legislation to capital transfer tax has effect as a reference to inheritance tax.

2 Chargeable transfers and exempt transfers.U.K.

(1)A chargeable transfer is a transfer of value which is made by an individual but is not (by virtue of Part II of this Act or any other enactment) an exempt transfer.

(2)A transfer of value made by an individual and exempt only to a limited extent—

(a)is, if all the value transferred by it is within the limit, an exempt transfer, and

(b)is, if that value is partly within and partly outside the limit, a chargeable transfer of so much of that value as is outside the limit as well as an exempt transfer of so much of that value as is within the limit.

(3)Except where the context otherwise requires, references in this Act to chargeable transfers, to their making or to the values transferred by them shall be construed as including references to occasions on which tax is chargeable under Chapter III of Part III of this Act (apart from section 79), to their occurrence or to the amounts on which tax is then chargeable.

3 Transfers of value.U.K.

(1)Subject to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer.

(2)For the purposes of subsection (1) above no account shall be taken of the value of excluded property which ceases to form part of a person’s estate as a result of a disposition.

(3)[F3 Where the value of a person's estate is diminished, and the value—

(a)of another person's estate, or

(b)of any settled property, other than settled property treated by section 49(1) below as property to which a person is beneficially entitled,

is increased] by the first-mentioned person’s omission to exercise a right, he shall be treated for the purposes of this section as having made a disposition at the time (or latest time) when he could have exercised the right, unless it is shown that the omission was not deliberate.

(4)Except as otherwise provided, references in this Act to a transfer of value made, or made by any person, include references to events on the happening of which tax is chargeable as if a transfer of value had been made, or, as the case may be, had been made by that person; and “transferor” shall be construed accordingly.

Textual Amendments

F3Words in s. 3(3) substituted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 8

[F43A Potentially exempt transfers.U.K.

(1)Any reference in this Act to a potentially exempt transfer is a reference to a transfer of value—

(a)which is made by an individual on or after 18th March 1986 [F5but before 22nd March 2006] ; and

(b)which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer); and

(c)to the extent that it constitutes either a gift to another individual or a gift into an accumulation and maintenance trust or a disabled trust;

F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F7(1A)Any reference in this Act to a potentially exempt transfer is also a reference to a transfer of value—

(a)which is made by an individual on or after 22nd March 2006,

(b)which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer), and

(c)to the extent that it constitutes—

(i)a gift to another individual,

(ii)a gift into a disabled trust, or

(iii)a gift into a bereaved minor's trust on the coming to an end of an immediate post-death interest.

(1B)Subsections (1) and (1A) above have effect subject to any provision of this Act which provides that a disposition (or transfer of value) of a particular description is not a potentially exempt transfer.]

(2)Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) [F8 or (1A)(c)(i)] above, as a gift to another individual,—

(a)to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes comprised in the estate of that other individual, . . . F9, or

(b)so far as that value is not attributable to property which becomes comprised in the estate of another person, to the extent that, by virtue of the transfer, the estate of that other individual is increased, . . . F10

(3)Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) above, as a gift into an accumulation and maintenance trust or a disabled trust, to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 71 or 89 of this Act applies.

[F11(3A)Subject to subsection (6) below, a transfer of value falls within subsection (1A)(c)(ii) above to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 89 below applies.

(3B)A transfer of value falls within subsection (1A)(c)(iii) above to the extent that the value transferred is attributable to settled property (whenever settled) that becomes property to which section 71A below applies in the following circumstances—

(a)under the settlement, a person (“L”) is beneficially entitled to an interest in possession in the settled property,

(b)the interest in possession is an immediate post-death interest,

(c)on or after 22nd March 2006, but during L's life, the interest in possession comes to an end,

(d)L is beneficially entitled to the interest in possession immediately before it comes to an end, and

(e)on the interest in possession coming to an end, the property—

(i)continues to be held on the trusts of the settlement, and

(ii)becomes property to which section 71A below applies.]

(4)A potentially exempt transfer which is made seven years or more before the death of the transferor is an exempt transfer and any other potentially exempt transfer is a chargeable transfer.

(5)During the period beginning on the date of a potentially exempt transfer and ending immediately before—

(a)the seventh anniversary of that date, or

(b)if it is earlier, the death of the transferor,

it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer.

(6)Where, under any provision of this Act F12. . . tax is in any circumstances to be charged as if a transfer of value had been made, that transfer shall be taken to be a transfer which is not a potentially exempt transfer.]

[F13(6A)The reference in subsection (6) above to any provision of this Act does not include section 52 below except where the transfer of value treated as made by that section is one treated as made on the coming to an end of an interest which falls within section 5(1B) below.]

[F14(7)In the application of this section to an event on the happening of which tax is chargeable under section 52 below, the reference in subsection (1)(a) [F15or (1A)(a)] above to the individual by whom the transfer of value is made is a reference to the person who, by virtue of section 3(4) above, is treated as the transferor.]

Textual Amendments

F4Finance Act 1986 Sch. 19 para. 1,in relation to transfers of value made on or after 18March 1986.

F5Words in s. 3A(1)(a) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 9(2)

F6Words in s. 3A(1) repealed (22.3.2006) by Finance Act 2006 (c. 25), s. 178, {Sch. 26 Pt. 6 Note 1}

F7S. 3A(1A)(1B) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 9(3)

F8Words in s. 3A(2) inserted (22.3.2006) by Finance Act 2006, s. 156, Sch. 20 paras. 7, {9(4)}

F9 Repealed by Finance Act 1987 (No. 2) s. 96(2)(a)and Sch. 9 Part III,with effect from 17March 1987.

F10 Repealed by Finance Act 1987 (No. 2) s. 96(2)(b)and Sch. 9 Part IIIwith effect from 17March 1987.

F11S. 3A(3A)(3B) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 9(5)

F12Words in s. 3A(6) omitted (with effect as mentioned in s. 53(10) of the amending Act) by virtue of Finance Act 2010 (c. 13), s. 53(2)(a)

F13S. 3A(6A) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(2)(b)

F14Finance Act 1987 (No. 2) s. 96(1), (3),in relation to transfers of value made on or after 17March 1987.

F15Words in s. 3A(7) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 9(6)

4 Transfers on death.U.K.

(1)On the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.

(2)For the purposes of this section, where it cannot be known which of two or more persons who have died survived the other or others they shall be assumed to have died at the same instant.

5 Meaning of estate.U.K.

(1)For the purposes of this Act a person’s estate is the aggregate of all the property to which he is beneficially entitled, [F16 except that—

(a)the estate of a person—

(i)does not include an interest in possession in settled property to which section 71A or 71D below applies, and

(ii)does not include an interest in possession that falls within subsection (1A) below [F17unless it falls within subsection (1B) below], and

(b)the] estate of a person immediately before his death does not include excluded property [F18or a foreign-owned work of art which is situated in the United Kingdom for one or more of the purposes of public display, cleaning and restoration (and for no other purpose).]

[F19(1A)An interest in possession falls within this subsection if—

(a)it is an interest in possession in settled property,

(b)the settled property is not property to which section 71A or 71D below applies,

(c)the person is beneficially entitled to the interest in possession,

(d)the person became beneficially entitled to the interest in possession on or after 22nd March 2006, and

(e)the interest in possession is—

(i)not an immediate post-death interest,

(ii)not a disabled person's interest, and

(iii)not a transitional serial interest.]

[F20(1B)An interest in possession falls within this subsection if the person—

(a)was domiciled in the United Kingdom on becoming beneficially entitled to it, and

(b)became beneficially entitled to it by virtue of a disposition which was prevented from being a transfer of value by section 10 below.]

(2)A person who has a general power which enables him, or would if he were sui juris enable him, to dispose of any property other than settled property, or to charge money on any property other than settled property, shall be treated as beneficially entitled to the property or money; and for this purpose “general power” means a power or authority enabling the person by whom it is exercisable to appoint or dispose of property as he thinks fit.

(3)In determining the value of a person’s estate at any time his liabilities at that time shall be taken into account, except as otherwise provided by this Act.

(4)The liabilities to be taken into account in determining the value of a transferor’s estate immediately after a transfer of value include his liability for [F21inheritance tax] on the value transferred but not his liability (if any) for any other tax or duty resulting from the transfer.

(5)Except in the case of a liability imposed by law, a liability incurred by a transferor shall be taken into account only to the extent that it was incurred for a consideration in money or money’s worth.

Textual Amendments

F16Words in s. 5(1) substituted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 para. 7, 10(2)

F17Words in s. 5(a)(ii) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(3)(a)

F18Words in s. 5(1)(b) inserted (6.4.2009 with effect as mentioned in art. 13(5) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730), art. 13(2)

F19S. 5(1A) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 10(3)

F20S. 5(1B) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(3)(b)

F21 See Finance Act 1986 s. 100(1)and (2)—for any liability to tax arising on and after 25July 1986any reference in the legislation to capital transfer tax has effect as a reference to inheritance tax.

6 Excluded property.U.K.

(1)Property situated outside the United Kingdom is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom.

[F22(1A)A holding in an authorised unit trust and a share in an open-ended investment company is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom.]

[F23[F24(1B)A relevant decoration or award is excluded property if it has never been the subject of a disposition for a consideration in money or money's worth.

(1BA)In subsection (1B) “relevant decoration or award” means a decoration or other similar award—

(a)that is designed to be worn to denote membership of—

(i)an Order that is, or has been, specified in the Order of Wear published in the London Gazette (“the Order of Wear”), or

(ii)an Order of a country or territory outside the United Kingdom,

(b)that is, or has been, specified in the Order of Wear,

(c)that was awarded for valour or gallant conduct,

(d)that was awarded for, or in connection with, a person being, or having been, a member of, or employed or engaged in connection with, the armed forces of any country or territory,

(e)that was awarded for, or in connection with, a person being, or having been, an emergency responder within the meaning of section 153A (death of emergency service personnel etc), or

(f)that was awarded by the Crown or a country or territory outside the United Kingdom for, or in connection with, public service or achievement in public life.]

(1C)In subsection (1B) the reference to a disposition of the decoration or other award includes—

(a)a reference to a disposition of part of it, and

(b)a reference to a disposition of an interest in it (or in part of it).]

(2)Where securities have been issued by the Treasury subject to a condition authorised by section 22 of the M1Finance (No. 2) Act 1931 (or section 47 of the M2Finance (No. 2) Act 1915) for exemption from taxation so long as the securities are in the beneficial ownership of persons [F25of a description specified in the condition], the securities are excluded property if they are in the beneficial ownership of such a person.

(3)Where the person beneficially entitled to the rights conferred by any of the following, namely—

(a)war savings certificates;

(b)national savings certificates (including Ulster savings certificates);

(c)premium savings bonds;

(d)deposits with the National Savings Bank or with a trustee savings bank;

(e)a [F26certified SAYE savings arrangement] within the meaning of [F27section 703(1) of the Income Tax (Trading and Other Income) Act 2005];

is domiciled in the Channel Islands or the Isle of Man, the rights are excluded property.

(4)Property to which this subsection applies by virtue of section 155(1) [F28or (5A)] below is excluded property.

[F29(5)This section is subject to Schedule A1 (non-excluded overseas property).]

Textual Amendments

F22S. 6(1A) inserted (with effect as stated in s. 186(8) of the amending Act) by Finance Act 2003 (c. 14), s. 186(2)

F23S. 6(1B)(1BA) substituted for s. 6(1B) (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 2015 (c. 11), s. 74(1)

F24S. 6(1B)(1C) inserted (6.4.2009 with effect as mentioned in art. 14(2) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730, art. 14(1)

F25Words in s. 6(2) substituted (29.4.1996 with effect as mentioned in s. 154(9) of the amending Act) by 1996 c. 8, s. 154(7), Sch. 28 para. 7 (with s. 154(5))

F26Words in s. 6(3)(e) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 882, 883, Sch. 1 para. 394(a) (with Sch. 2)

F27Words in s. 6(3)(e) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 882, 883, Sch. 1 para. 394(b) (with Sch. 2)

F28Words in s. 6(4) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 37 para. 2

F29S. 6(5) inserted (with effect in accordance with Sch. 10 para. 9 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 10 para. 3

Marginal Citations

RatesU.K.

7 Rates.U.K.

(1)[F30Subject to subsections (2), (4) and (5) below] [F31and to [F32section 8D and] Schedule 1A] the tax charged on the value transferred by a chargeable transfer made by any transferor shall be charged at the following rate or rates, that is to say—

(a)if the transfer is the first chargeable transfer made by that transferor in the period of [F33seven years] ending with the date of the transfer, at the rate or rates applicable to that value under the . . . F34 Table in Schedule 1 to this Act;

(b)in any other case, at the rate or rates applicable under that Table to such part of the aggregate of—

(i)that value, and

(ii)the values transferred by previous chargeable transfers made by him in that period,

as is the highest part of that aggregate and is equal to that value.

[F35(2)Except as provided by subsection (4) below, the tax charged on the value transferred by a chargeable transfer made before the death of the transferor shall be charged at one-half of the rate or rates referred to in subsection (1) above.]

(3)In [F36the Table] in Schedule 1 to this Act any rate shown in the third column is that applicable to such portion of the value concerned as exceeds the lower limit shown in the first column but does not exceed the upper limit (if any) shown in the second column.

[F37(4)Subject to subsection (5) below, subsection (2) above does not apply in the case of a chargeable transfer made at any time within the period of seven years ending with the death of the transferor but, in the case of a chargeable transfer made within that period but more than three years before the death, the tax charged on the value transferred shall be charged at the following percentage of the rate or rates referred to in subsection (1) above—

(a)where the transfer is made more than three but not more than four years before the death, 80 per cent;

(b)where the transfer is made more than four but not more than five years before the death, 60 per cent;

(c)where the transfer is made more than five but not more than six years before the death, 40 per cent; and

(d)where the transfer is made more than six but not more than seven years before the death, 20 per cent.

(5)If, in the case of a chargeable transfer made before the death of the transferor, the tax which would fall to be charged in accordance with subsection (4) above is less than the tax which would have been chargeable (in accordance with subsection (2) above) if the transferor had not died within the period of seven years beginning with the date of the transfer, subsection (4) above shall not apply in the case of that transfer.]

Textual Amendments

F30Finance Act 1986 Sch. 19, para. 2(1)(a),with effect from 18March 1986.

F31Words in s. 7(1) inserted (with effect in accordance with Sch. 33 para. 10(1) of the amending Act) by Finance Act 2012 (c. 14), Sch. 33 para. 3

F32Words in s. 7(1) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(2)

F33Finance Act 1986 Sch. 19, para. 2(1)(b),with effect from 18March 1986.Originally

“ten years”.

F34 Repealed by Finance Act 1986 s. 101(3)and Sch. 19, para. 2(1)(c),with effect from 18March 1986.

F35Finance Act 1986 Sch. 19, para. 2(2),with effect from 18March 1986.Originally

“(2) Except as otherwise provided, the first Table in Schedule 1 to this Act is the appropriate Table for a transfer made on or at any time within three years of the death of the transferor, and the second Table in that Schedule is the appropriate Table for any other transfer.”

F36Finance Act 1986 Sch. 19, para. 2(3),with effect from 18March 1986.Originally

“each of the Tables”.

F37Finance Act 1986 Sch. 19, para. 2(4),with effect from 18March 1986.

8 Indexation of rate bands.U.K.

(1)If the [F38consumer prices index for the month of September in any year] is higher than it was for the [F39previous September], then, unless Parliament otherwise determines, section 7 above and Schedule 1 to this Act shall apply to chargeable transfers made on or after 6th April in the following year with the substitution of [F40a new Table for the Table] applying (whether by virtue of this section or otherwise) to earlier chargeable transfers.

(1A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F41

(2)The new [F42Table] shall differ from the [F42Table] it replaces in that for each of the amounts specified in the first and second columns there shall be substituted amounts arrived at by increasing the previous amounts by the same percentage as the percentage increase in the [F43consumer prices index ] and, if the result is not a multiple of £1,000, rounding it up to the nearest amount which is such a multiple.

[F44(3)In this section, “consumer prices index” means the all items consumer prices index published by the Statistics Board.]

(4)The Treasury shall before 6th April [F391994] and each subsequent 6th April make an order specifying the amounts which by virtue of this section will be treated, in relation to chargeable transfers on or after that date, as specified in the [F45Table] in Schedule 1 to this Act; and any such order shall be made by statutory instrument.

Textual Amendments

F38Words in s. 8(1) substituted (with effect in accordance with s. 208(5) of the amending Act) by Finance Act 2012 (c. 14), s. 208(2)

F39Words in s. 8(1)(3)(4) substituted (27.7.1993: the substituting section applying in relation to chargeble transfers made on or after 6.4.1994) by 1993 c. 34, s. 197(1)(2).

F40Finance Act 1986 Sch. 19, para. 3(1), with effect from 18 March 1986. Originally “new Tables for the Tables”.

F41Finance Act 1986 Sch. 19, para. 3(2), with effect from 18 March 1986. repealed by 1988, s. 136(3) and Sch.14, Part X with effect from 15 March 1988.

F42Finance Act 1986 Sch. 19, para. 3(3), with effect from 18 March 1986. Originally “Tables”.

F43Words in s. 8(2) substituted (with effect in accordance with s. 208(5) of the amending Act) by Finance Act 2012 (c. 14), s. 208(3)

F44S. 8(3) substituted (with effect in accordance with s. 208(5) of the amending Act) by Finance Act 2012 (c. 14), s. 208(4)

F45Finance Act 1986 Sch. 19, para. 3(4), with effect from 18 March 1986. Originally “Tables”.

Modifications etc. (not altering text)

C6S. 8(1) restricted (7.4.2005) by Finance Act 2005 (c. 7), s. 98(6)

C7S. 8(1) excluded (19.7.2006) by Finance Act 2006 (c. 25), s. 155(5)

C8S. 8 restricted (19.3.1997 with effect as mentioned in s. 93(2) of the amending Act) by 1997 c. 16, s. 93(2)

C9S. 8 restricted (8.4.2010) by Finance Act 2010 (c. 13), s. 8(3)

C10S. 8 excluded (17.7.2014) by Finance Act 2014 (c. 26), Sch. 25 para. 2

C11S. 8 excluded (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 10

C12S. 8(1) excluded (16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 72(2).

S. 8(1) excluded (27.7.1993) by 1993 c. 34, s. 196.

S. 8(1) excluded (3.5.1994 with effect as mentioned in s. 246 of the amending Act) by 1994 c. 9, s. 246

C13S. 8(1) restricted (24.7.2002) by 2002 c. 23, s. 118(2)

[F468ATransfer of unused nil-rate band between spouses and civil partnersU.K.

(1)This section applies where—

(a)immediately before the death of a person (a “deceased person”), the deceased person had a spouse or civil partner (“the survivor”), and

(b)the deceased person had unused nil-rate band on death.

(2)A person has unused nil-rate band on death if—

where—

M is the maximum amount that could be transferred by a chargeable transfer made (under section 4 above) on the person's death if it were to be wholly chargeable to tax at the rate of nil per cent. (assuming, if necessary, that the value of the person's estate were sufficient but [F47that the maximum amount chargeable at nil per cent. under section 8D(2) is equal to the person's residence nil-rate amount and] otherwise having regard to the circumstances of the person); and

VT is the value actually transferred by the chargeable transfer so made (or nil if no chargeable transfer is so made).

(3)Where a claim is made under this section, the nil-rate band maximum at the time of the survivor's death is to be treated for the purposes of the charge to tax on the death of the survivor as increased by the percentage specified in subsection (4) below (but subject to subsection (5) and section 8C below).

(4)That percentage is—

where—

E is the amount by which M is greater than VT in the case of the deceased person; and

NRBMD is the nil-rate band maximum at the time of the deceased person's death.

(5)If (apart from this subsection) the amount of the increase in the nil-rate band maximum at the time of the survivor's death effected by this section would exceed the amount of that nil-rate band maximum, the amount of the increase is limited to the amount of that nil-rate band maximum.

(6)Subsection (5) above may apply either—

(a)because the percentage mentioned in subsection (4) above (as reduced under section 8C below where that section applies) is more than 100 because of the amount by which M is greater than VT in the case of one deceased person, or

(b)because this section applies in relation to the survivor by reference to the death of more than one person who had unused nil-rate band on death.

(7)In this Act “nil-rate band maximum” means the amount shown in the second column in the first row of the Table in Schedule 1 to this Act (upper limit of portion of value charged at rate of nil per cent.) and in the first column in the second row of that Table (lower limit of portion charged at next rate).

Textual Amendments

F46Ss. 8A-8C inserted (with effect as mentioned in Sch. 4 para. 9(1) of the amending Act) by Finance Act 2008 (c. 9), s. 10, Sch. 4 para. 2 (with transitional modifications in Sch. 4 paras. 10, 11)

F47Words in s. 8A(2) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(3)

8BClaims under section 8AU.K.

(1)A claim under section 8A above may be made—

(a)by the personal representatives of the survivor within the permitted period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on the survivor's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(2)If no claim under section 8A above has been made in relation to a person (P) by reference to whose death that section applies in relation to the survivor, the claim under that section in relation to the survivor may include a claim under that section in relation to P if that does not affect the tax chargeable on the value transferred by the chargeable transfer of value made on P's death.

(3)In subsection (1)(a) above “the permitted period” means—

(a)the period of two years from the end of the month in which the survivor dies or (if it ends later) the period of three months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(4)A claim made within either of the periods mentioned in subsection (3)(a) above may be withdrawn no later than one month after the end of the period concerned.

Textual Amendments

F46Ss. 8A-8C inserted (with effect as mentioned in Sch. 4 para. 9(1) of the amending Act) by Finance Act 2008 (c. 9), s. 10, Sch. 4 para. 2 (with transitional modifications in Sch. 4 paras. 10, 11)

8CSection 8A and subsequent chargesU.K.

(1)This section applies where—

(a)the conditions in subsection (1)(a) and (b) of section 8A above are met, and

(b)after the death of the deceased person, tax is charged on an amount under any of sections 32, 32A and 126 below by reference to the rate or rates that would have been applicable to the amount if it were included in the value transferred by the chargeable transfer made (under section 4 above) on the deceased person's death.

(2)If the tax is charged before the death of the survivor, the percentage referred to in subsection (3) of section 8A above is (instead of that specified in subsection (4) of that section)—

where—

E and NRBMD have the same meaning as in subsection (4) of that section;

TA is the amount on which tax is charged; and

NRBME is the nil-rate band maximum at the time of the event occasioning the charge.

(3)If this section has applied by reason of a previous event or events, the reference in subsection (2) to the fraction

is to the aggregate of that fraction in respect of the current event and the previous event (or each of the previous events).

(4)If the tax is charged after the death of the survivor, it is charged as if the personal nil-rate band maximum of the deceased person were appropriately reduced.

(5)In subsection (4) above—

Textual Amendments

F46Ss. 8A-8C inserted (with effect as mentioned in Sch. 4 para. 9(1) of the amending Act) by Finance Act 2008 (c. 9), s. 10, Sch. 4 para. 2 (with transitional modifications in Sch. 4 paras. 10, 11)

[F488DExtra nil-rate band on death if interest in home goes to descendants etcU.K.

(1)Subsections (2) and (3) apply for the purpose of calculating the amount of the charge to tax under section 4 on a person's death if the person dies on or after 6 April 2017.

(2)If the person's residence nil-rate amount is greater than nil, the portion of VT that does not exceed the person's residence nil-rate amount is charged at the rate of 0%.

(3)References in section 7(1) to the value transferred by the chargeable transfer under section 4 on the person's death are to be read as references to the remainder (if any) of VT.

(4)The person's residence nil-rate amount is calculated in accordance with sections 8E to 8G [F49(and see also section 8M)].

(5)For the purposes of those sections and this section—

(a)the “residential enhancement” is—

(i)£100,000 for the tax year 2017-18,

(ii)£125,000 for the tax year 2018-19,

(iii)£150,000 for the tax year 2019-20, and

(iv)£175,000 for the tax year 2020-21 and subsequent tax years,

but this is subject to subsections (6) and (7),

(b)the “taper threshold” is £2,000,000 for the tax year 2017-18 and subsequent tax years, but this is subject to subsections (6) and (7),

(c)TT is the taper threshold at the person's death,

(d)E is the value of the person's estate immediately before the person's death,

(e)VT is the value transferred by the chargeable transfer under section 4 on the person's death,

(f)the person's “default allowance” is the total of—

(i)the residential enhancement at the person's death, and

(ii)the person's brought-forward allowance (see section 8G), and

(g)the person's “adjusted allowance” is—

(i)the person's default allowance, less

(ii)the amount given by—

but is nil if that amount is greater than the person's default allowance.

(6)Subsection (7) applies if—

(a)the consumer prices index for the month of September in any tax year (“the prior tax year”) is higher than it was for the previous September, and

(b)the prior tax year is the tax year 2020-21 or a later tax year.

(7)Unless Parliament otherwise determines, the amount of each of—

(a)the residential enhancement for the tax year following the prior tax year, and

(b)the taper threshold for that following tax year,

is its amount for the prior tax year increased by the same percentage as the percentage increase in the index and, if the result is not a multiple of £1,000, rounded up to the nearest amount which is such a multiple.

(8)The Treasury must before 6 April 2021 and each subsequent 6 April make an order specifying the amounts that in accordance with subsections (6) and (7) are the residential enhancement and taper threshold for the tax year beginning on that date; and any such order is to be made by statutory instrument.

(9)In this section—

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F49Words in s. 8D(4) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 2(2)

F50Words in s. 8D(9) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 2(3)

8EResidence nil-rate amount: interest in home goes to descendants etcU.K.

(1)Subsections (2) to (7) apply if—

(a)the person's estate immediately before the person's death includes a qualifying residential interest, and

(b)N% of the interest is closely inherited, where N is a number—

(i)greater than 0, and

(ii)less than or equal to 100,

and in those subsections “NV/100” means N% of so much (if any) of the value transferred by the transfer of value under section 4 [F51on the person’s death] as is attributable to the interest.

(2)Where—

(a)E is less than or equal to TT, and

(b)NV/100 is less than the person's default allowance,

the person's residence nil-rate amount is equal to NV/100 and an amount, equal to the difference between NV/100 and the person's default allowance, is available for carry-forward.

(3)Where—

(a)E is less than or equal to TT, and

(b)NV/100 is greater than or equal to the person's default allowance,

the person's residence nil-rate amount is equal to the person's default allowance (and no amount is available for carry-forward).

(4)Where—

(a)E is greater than TT, and

(b)NV/100 is less than the person's adjusted allowance,

the person's residence nil-rate amount is equal to NV/100 and an amount, equal to the difference between NV/100 and the person's adjusted allowance, is available for carry-forward.

(5)Where—

(a)E is greater than TT, and

(b)NV/100 is greater than or equal to the person's adjusted allowance,

the person's residence nil-rate amount is equal to the person's adjusted allowance (and no amount is available for carry-forward).

(6)Subsections (2) to (5) have effect subject to subsection (7) [F52and sections 8FC and 8M(2B) to (2E)].

(7)Where the person's residence nil-rate amount as calculated under subsections (2) to (5) without applying this subsection is greater than VT—

[F53(a)the person's residence nil-rate amount is equal to VT,

(b)where E is less than or equal to TT, an amount, equal to the difference between VT and the person's default allowance, is available for carry-forward, and

(c)where E is greater than TT, an amount, equal to the difference between VT and the person's adjusted allowance, is available for carry-forward.]

(8)See also—

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F51Words in s. 8E(1) inserted (with application in accordance with s. 66(6) of the amending Act) by Finance Act 2019 (c. 1), s. 66(4)

F52Words in s. 8E(6) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 3(2)

F53S. 8E(7)(a)-(c) substituted for s. 8E(7)(a)(b) (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 3(3)

F54Words in s. 8E(8) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 3(4)(a)

F55Words in s. 8E(8) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 3(4)(b)

8FResidence nil-rate amount: no interest in home goes to descendants etcU.K.

(1)Subsections (2) and (3) apply if the person's estate immediately before the person's death—

(a)does not include a qualifying residential interest, or

(b)includes a qualifying residential interest but none of the interest is closely inherited.

(2)The person's residence nil-rate amount is nil.

(3)An amount—

(a)equal to the person's default allowance, or

(b)if E is greater than TT, equal to the person's adjusted allowance,

is available for carry-forward.

(4)See also—

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F56Words in s. 8F(4) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 4(a)

F57Words in s. 8F(4) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 4(b)

[F588FADownsizing addition: entitlement: low-value death interest in homeU.K.

(1)There is entitlement to a downsizing addition in calculating the person's residence nil-rate amount if each of conditions A to F is met (see subsection (8) for the amount of the addition).

(2)Condition A is that—

(a)the person's residence nil-rate amount is given by section 8E(2) or (4), or

(b)the person's estate immediately before the person's death includes a qualifying residential interest but none of the interest is closely inherited, and—

(i)where E is less than or equal to TT, so much of [F59the value transferred by the transfer of value under section 4 on the person’s death] as is attributable to the person's qualifying residential interest is less than the person's default allowance, or

(ii)where E is greater than TT, so much of [F59the value transferred by the transfer of value under section 4 on the person’s death] as is attributable to the person's qualifying residential interest is less than the person's adjusted allowance.

Section 8E(6) and (7) do not apply, and any entitlement to a downsizing addition is to be ignored, when deciding whether paragraph (a) of condition A is met.

(3)Condition B is that not all of VT is attributable to the person's qualifying residential interest.

(4)Condition C is that there is a qualifying former residential interest in relation to the person (see sections 8H(4A) to (4F) and 8HA).

(5)Condition D is that the value of the qualifying former residential interest exceeds so much of [F60the value transferred by the transfer of value under section 4 on the person’s death] as is attributable to the person's qualifying residential interest.

Section 8FE(2) explains what is meant by the value of the qualifying former residential interest.

(6)Condition E is that at least some of the remainder is closely inherited, where “the remainder” means everything included in the person's estate immediately before the person's death other than the person's qualifying residential interest.

(7)Condition F is that a claim is made for the addition in accordance with section 8L(1) to (3).

(8)Where there is entitlement as a result of this section, the addition—

(a)is equal to the lost relievable amount (see section 8FE) if that amount is less than so much of VT as is attributable to so much of the remainder as is closely inherited, and

(b)otherwise is equal to so much of VT as is attributable to so much of the remainder as is closely inherited.

(9)Subsection (8) has effect subject to section 8M(2G) (reduction of downsizing addition in certain cases involving conditional exemption).

(10)See also—

Textual Amendments

F58Ss. 8FA-8FE inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 5

F59Words in s. 8FA(2)(b) substituted (with application in accordance with s. 66(6) of the amending Act) by Finance Act 2019 (c. 1), s. 66(2)

F60Words in s. 8FA(5) substituted (with application in accordance with s. 66(6) of the amending Act) by Finance Act 2019 (c. 1), s. 66(2)

8FBDownsizing addition: entitlement: no residential interest at deathU.K.

(1)There is also entitlement to a downsizing addition in calculating the person's residence nil-rate amount if each of conditions G to K is met (see subsection (7) for the amount of the addition).

(2)Condition G is that the person's estate immediately before the person's death (“the estate”) does not include a residential property interest.

(3)Condition H is that VT is greater than nil.

(4)Condition I is that there is a qualifying former residential interest in relation to the person (see sections 8H(4A) to (4F) and 8HA).

(5)Condition J is that at least some of the estate is closely inherited.

(6)Condition K is that a claim is made for the addition in accordance with section 8L(1) to (3).

(7)Where there is entitlement as a result of this section, the addition—

(a)is equal to the lost relievable amount (see section 8FE) if that amount is less than so much of VT as is attributable to so much of the estate as is closely inherited, and

(b)otherwise is equal to so much of VT as is attributable to so much of the estate as is closely inherited.

(8)Subsection (7) has effect subject to section 8M(2G) (reduction of downsizing addition in certain cases involving conditional exemption).

(9)See also—

Textual Amendments

F58Ss. 8FA-8FE inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 5

8FCDownsizing addition: effect: section 8E caseU.K.

(1)Subsection (2) applies if—

(a)as a result of section 8FA, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, and

(b)the person's residence nil-rate amount is given by section 8E.

(2)Section 8E has effect as if, in subsections (2) to (5) of that section, each reference to NV/100 were a reference to the total of—

(a)NV/100, and

(b)the downsizing addition.

Textual Amendments

F58Ss. 8FA-8FE inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 5

8FDDownsizing addition: effect: section 8F caseU.K.

(1)This section applies if—

(a)as a result of section 8FA or 8FB, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, and

(b)apart from this section, the person's residence nil-rate amount is given by section 8F.

(2)Subsections (3) to (6) apply instead of section 8F.

(3)The person's residence nil-rate amount is equal to the downsizing addition.

(4)Where—

(a)E is less than or equal to TT, and the downsizing addition is equal to the person's default allowance, or

(b)E is greater than TT, and the downsizing addition is equal to the person's adjusted allowance,

no amount is available for carry-forward.

(5)Where—

(a)E is less than or equal to TT, and

(b)the downsizing addition is less than the person's default allowance,

an amount, equal to the difference between the downsizing addition and the person's default allowance, is available for carry-forward.

(6)Where—

(a)E is greater than TT, and

(b)the downsizing addition is less than the person's adjusted allowance,

an amount, equal to the difference between the downsizing addition and the person's adjusted allowance, is available for carry-forward.

Textual Amendments

F58Ss. 8FA-8FE inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 5

8FECalculation of lost relievable amountU.K.

(1)This section is about how to calculate the person's lost relievable amount for the purposes of sections 8FA(8) and 8FB(7).

(2)For the purposes of this section and section 8FA(5), the value of the person's qualifying former residential interest is the value of the interest at the time of completion of the disposal of the interest.

(3)In this section, the person's “former allowance” is the total of—

(a)the residential enhancement at the time of completion of the disposal of the qualifying former residential interest,

(b)any brought-forward allowance that the person would have had if the person had died at that time, having regard to the circumstances of the person at that time (see section 8G as applied by subsection (4)), and

(c)if the person's allowance on death includes an amount of brought-forward allowance which is greater than the amount of brought-forward allowance given by paragraph (b), the difference between those two amounts.

(4)For the purposes of calculating any brought-forward allowance that the person (“P”) would have had as mentioned in subsection (3)(b)—

(a)section 8G (brought-forward allowance) applies, but as if references to the residential enhancement at P's death were references to the residential enhancement at the time of completion of the disposal of the qualifying former residential interest, and

(b)assume that a claim for brought-forward allowance was made in relation to an amount available for carry-forward from a related person's death if, on P's death, a claim was in fact made in relation to the amount.

(5)For the purposes of subsection (3)(c), where the person's allowance on death is equal to the person's adjusted allowance, the amount of brought-forward allowance included in the person's allowance on death is calculated as follows.

(6)If completion of the disposal of the qualifying former residential interest occurs before 6 April 2017—

(a)for the purposes of subsection (3)(a), the residential enhancement at the time of completion of the disposal is treated as being £100,000, and

(b)for the purposes of subsection (3)(b), the amount of brought-forward allowance that the person would have had at that time is treated as being nil.

(7)In this section, the person's “allowance on death” means—

(a)where E is less than or equal to TT, the person's default allowance, or

(b)where E is greater than TT, the person's adjusted allowance.

(8)For the purposes of this section, “completion” of the disposal of a residential property interest occurs at the time of the disposal or, if the disposal is under a contract which is completed by a conveyance, at the time when the interest is conveyed.

(9)Where, as a result of section 8FA, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, take the following steps to calculate the person's lost relievable amount.

(10)Where, as a result of section 8FB, there is entitlement to a downsizing addition in calculating the person's residence nil-rate amount, take the following steps to calculate the person's lost relievable amount.

Textual Amendments

F58Ss. 8FA-8FE inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 5

F61Words in s. 8FE(9) substituted (with application in accordance with s. 66(6) of the amending Act) by Finance Act 2019 (c. 1), s. 66(3)

[F488GMeaning of “brought-forward allowance”U.K.

(1)This section is about the amount of the brought-forward allowance (see section 8D(5)(f)) for a person (“P”) who dies on or after 6 April 2017.

(2)In this section “related person” means a person other than P where—

(a)the other person dies before P, and

(b)immediately before the other person dies, P is the other person's spouse or civil partner.

(3)P's brought-forward allowance is calculated as follows—

(a)identify each amount available for carry-forward from the death of a related person (see sections 8E [F62, 8F and 8FD], and subsections (4) and (5)),

(b)express each such amount as a percentage of the residential enhancement at the death of the related person concerned,

(c)calculate the percentage that is the total of those percentages, and

(d)the amount that is that total percentage of the residential enhancement at P's death is P's brought-forward allowance or, if that total percentage is greater than 100%, P's brought-forward allowance is the amount of the residential enhancement at P's death,

but P's brought-forward allowance is nil if no claim for it is made under section 8L.

(4)Where the death of a related person occurs before 6 April 2017—

(a)an amount equal to £100,000 is treated for the purposes of subsection (3) as being the amount available for carry-forward from the related person's death, but this is subject to subsection (5), and

(b)the residential enhancement at the related person's death is treated for those purposes as being £100,000.

(5)If the value (“RPE”) of the related person's estate immediately before the related person's death is greater than £2,000,000, the amount treated under subsection (4)(a) as available for carry-forward is reduced (but not below nil) by—

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F62Words in s. 8G(3)(a) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 6

8HMeaning of “qualifying residential interest” [F63, “qualifying former residential interest” and “residential property interest”]U.K.

(1)This section applies for the purposes of sections 8E [F64to 8FE and section 8M].

(2)[F65A]residential property interest”, in relation to a person, means an interest in a dwelling-house which has been the person's residence at a time when the person's estate included that, or any other, interest in the dwelling-house.

(3)Where a person's estate immediately before the person's death includes residential property interests in just one dwelling-house, the person's interests in that dwelling-house are a qualifying residential interest in relation to the person.

(4)Where—

(a)a person's estate immediately before the person's death includes residential property interests in each of two or more dwelling-houses, and

(b)the person's personal representatives nominate one (and only one) of those dwelling-houses,

the person's interests in the nominated dwelling-house are a qualifying residential interest in relation to the person.

[F66(4A)Subsection (4B) or (4C) applies where—

(a)a person disposes of a residential property interest in a dwelling-house on or after 8 July 2015 (and before the person dies), and

(b)the person's personal representatives nominate—

(i)where there is only one such dwelling-house, that dwelling-house, or

(ii)where there are two or more such dwelling-houses, one (and only one) of those dwelling-houses.

(4B)Where—

(a)the person—

(i)disposes of a residential property interest in the nominated dwelling-house at a post-occupation time, or

(ii)disposes of two or more residential property interests in the nominated dwelling-house at the same post-occupation time or at post-occupation times on the same day, and

(b)the person does not otherwise dispose of residential property interests in the nominated dwelling-house at post-occupation times,

the interest disposed of is, or the interests disposed of are, a qualifying former residential interest in relation to the person.

(4C)Where—

(a)the person disposes of residential property interests in the nominated dwelling-house at post-occupation times on two or more days, and

(b)the person's personal representatives nominate one (and only one) of those days,

the interest or interests disposed of at post-occupation times on the nominated day is or are a qualifying former residential interest in relation to the person.

(4D)For the purposes of subsections (4A) to (4C)—

(a)a person is to be treated as not disposing of a residential property interest in a dwelling-house where the person disposes of an interest in the dwelling-house by way of gift and the interest is, in relation to the gift and the donor, property subject to a reservation within the meaning of section 102 of the Finance Act 1986 (gifts with reservation), and

(b)a person is to be treated as disposing of a residential property interest in a dwelling-house if the person is treated as making a potentially exempt transfer of the interest as a result of the operation of section 102(4) of that Act (property ceasing to be subject to a reservation).

(4E)Where—

(a)a transfer of value by a person is a conditionally exempt transfer of a residential property interest, and

(b)at the time of the person's death, no chargeable event has occurred with respect to that interest,

that interest may not be, or be included in, a qualifying former residential interest in relation to the person.

(4F)In subsections (4B) and (4C) “post-occupation time” means a time—

(a)on or after 8 July 2015,

(b)after the nominated dwelling-house first became the person's residence, and

(c)before the person dies.

(4G)For the purposes of subsections (4A) to (4C), if the disposal is under a contract which is completed by a conveyance, the disposal occurs at the time when the interest is conveyed.]

(5)A reference in this section to a dwelling-house—

(a)includes any land occupied and enjoyed with it as its garden or grounds, but

(b)does not include, in the case of any particular person, any trees or underwood in relation to which an election is made under section 125 as it applies in relation to that person's death.

(6)If at any time when a person's estate includes an interest in a dwelling-house, the person—

(a)resides in living accommodation which for the person is job-related, and

(b)intends in due course to occupy the dwelling-house as the person's residence,

this section applies as if the dwelling-house were at that time occupied by the person as a residence.

(7)Section 222(8A) to (8D) of the 1992 Act (meaning of “job-related”), but not section 222(9) of that Act, apply for the purposes of subsection (6).]

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F63Words in s. 8H heading inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 7(2)

F64Words in s. 8H(1) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 7(3)

F65Word in s. 8H(2) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 7(4)

F66Ss. 8H(4A)-(4G) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 7(5)

[F678HAQualifying former residential interest”: interests in possessionU.K.

(1)This section applies for the purposes of determining whether certain interests may be, or be included in, a qualifying former residential interest in relation to a person (see section 8H(4A) to (4C)).

(2)This section applies where—

(a)a person (“P”) is beneficially entitled to an interest in possession in settled property, and

(b)the settled property consists of, or includes, an interest in a dwelling-house.

(3)Subsection (4) applies where—

(a)the trustees of the settlement dispose of the interest in the dwelling-house to a person other than P,

(b)P's interest in possession in the settled property subsists immediately before the disposal, and

(c)P's interest in possession—

(i)falls within subsection (7) throughout the period beginning with P becoming beneficially entitled to it and ending with the disposal, or

(ii)falls within subsection (8).

(4)The disposal is to be treated as a disposal by P of the interest in the dwelling-house to which P is beneficially entitled as a result of the operation of section 49(1).

(5)Subsection (6) applies where—

(a)P disposes of the interest in possession in the settled property, or P's interest in possession in the settled property comes to an end in P's lifetime,

(b)the interest in the dwelling-house is, or is part of, the settled property immediately before the time when that happens, and

(c)P's interest in possession—

(i)falls within subsection (7) throughout the period beginning with P becoming beneficially entitled to it and ending with the time mentioned in paragraph (b), or

(ii)falls within subsection (8).

(6)The disposal, or (as the case may be) the coming to an end of P's interest in possession, is to be treated as a disposal by P of the interest in the dwelling-house to which P is beneficially entitled as a result of the operation of section 49(1).

(7)An interest in possession falls within this subsection if—

(a)P became beneficially entitled to it before 22 March 2006 and section 71A does not apply to the settled property; or

(b)P becomes beneficially entitled to it on or after 22 March 2006 and the interest is—

(i)an immediate post-death interest,

(ii)a disabled person's interest, or

(iii)a transitional serial interest.

(8)An interest in possession falls within this subsection if P becomes beneficially entitled to it on or after 22 March 2006 and it falls within section 5(1B).]

Textual Amendments

F67S. 8HA inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 8

[F488JMeaning of “inherited”U.K.

(1)This section explains for the purposes of sections 8E [F68, 8F, 8FA, 8FB and 8M] whether a person (“B”) inherits, from a person who has died (“D”), property which forms part of D's estate immediately before D's death.

(2)B inherits the property if there is a disposition of it (whether effected by will, under the law relating to intestacy or otherwise) to B.

(3)Subsection (2) does not apply if—

(a)the property becomes comprised in a settlement on D's death, or

(b)immediately before D's death, the property was settled property in which D was beneficially entitled to an interest in possession.

(4)Where the property becomes comprised in a settlement on D's death, B inherits the property if—

(a)B becomes beneficially entitled on D's death to an interest in possession in the property, and that interest in possession is an immediate post-death interest or a disabled person's interest, or

(b)the property becomes, on D's death, settled property—

(i)to which section 71A or 71D applies, and

(ii)held on trusts for the benefit of B.

(5)Where, immediately before D's death, the property was settled property in which D was beneficially entitled to an interest in possession, B inherits the property if B becomes beneficially entitled to it on D's death.

(6)Where the property forms part of D's estate immediately before D's death as a result of the operation of section 102(3) of the Finance Act 1986 (gifts with reservation) in relation to a disposal of the property made by D by way of [F69gift—

(a)subsections (2) to (5) do not apply, and

(b)B inherits the property if the property originally comprised in the gift became comprised in B’s estate on the making of the disposal.]

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F68Words in s. 8J(1) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 9

F69Words in s. 8J(6) substituted (with application in accordance with s. 66(6) of the amending Act) by Finance Act 2019 (c. 1), s. 66(5)

8KMeaning of “closely inherited”U.K.

(1)In relation to the death of a person (“D”), something is “closely inherited” for the purposes of sections 8E [F70, 8F, 8FA, 8FB and 8M] if it is inherited for those purposes (see section 8J) by—

(a)a lineal descendant of D,

(b)a person who, at the time of D's death, is the spouse or civil partner of a lineal descendant of D, or

(c)a person who—

(i)at the time of the death of a lineal descendant of D who died no later than D, was the spouse or civil partner of the lineal descendant, and

(ii)has not, in the period beginning with the lineal descendant's death and ending with D's death, become anyone's spouse or civil partner.

(2)The rules in subsections (3) to (8) apply for the interpretation of subsection (1).

(3)A person who is at any time a step-child of another person is to be treated, at that and all subsequent times, as if the person was that other person's child.

(4)Any rule of law, so far as it requires an adopted person to be treated as not being the child of a natural parent of the person, is to be disregarded (but this is without prejudice to any rule of law requiring an adopted person to be treated as the child of an adopter of the person).

(5)A person who is at any time fostered by a foster parent is to be treated, at that and all subsequent times, as if the person was the foster parent's child.

(6)Where—

(a)an individual (“G”) is appointed (or is treated by law as having been appointed) under section 5 of the Children Act 1989, or under corresponding law having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, as guardian (however styled) of another person, and

(b)the appointment takes effect at a time when the other person (“C”) is under the age of 18 years,

C is to be treated, at all times after the appointment takes effect, as if C was G's child.

(7)Where—

(a)an individual (“SG”) is appointed as a special guardian (however styled) of another person (“C”) by an order of a court—

(i)that is a special guardianship order as defined by section 14A of the Children Act 1989, or

(ii)that is a corresponding order under legislation having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, and

(b)the appointment takes effect at a time when C is under the age of 18 years,

C is to be treated, at all times after the appointment takes effect, as if C was SG's child.

(8)In particular, where under any of subsections (3) to (7) one person is to be treated at any time as the child of another person, that first person's lineal descendants (even if born before that time) are accordingly to be treated at that time (and all subsequent times) as lineal descendants of that other person.

(9)In subsection (4) “adopted person” means—

(a)an adopted person within the meaning of Chapter 4 of Part 1 of the Adoption and Children Act 2002, or

(b)a person who would be an adopted person within the meaning of that Chapter if, in section 66(1)(e) of that Act and section 38(1)(e) of the Adoption Act 1976, the reference to the law of England and Wales were a reference to the law of any part of the United Kingdom.

(10)In subsection (5) “foster parent” means—

(a)someone who is approved as a local authority foster parent in accordance with regulations made by virtue of paragraph 12F of Schedule 2 to the Children Act 1989,

(b)a foster parent with whom the person is placed by a voluntary organisation under section 59(1)(a) that Act,

(c)someone who looks after the person in circumstances in which the person is a privately fostered child as defined by section 66 of that Act, or

(d)someone who, under legislation having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, is a foster parent (however styled) corresponding to a foster parent within paragraph (a) or (b).

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F70Words in s. 8K(1) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 10

8LClaims for brought-forward allowance [F71and downsizing addition] U.K.

(1)A claim for brought-forward allowance for a person (see section 8G) [F72or for a downsizing addition for a person (see sections 8FA to 8FD)] may be made—

(a)by the person's personal representatives within the permitted period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on the person's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(2)In subsection (1)(a) “the permitted period” means—

(a)the period of 2 years from the end of the month in which the person dies or (if it ends later) the period of 3 months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(3)A claim under subsection (1) made within either of the periods mentioned in subsection (2)(a) may be withdrawn no later than one month after the end of the period concerned.

(4)Subsection (5) applies if—

(a)no claim under this section has been made for brought-forward allowance for a person (“P”),

(b)the amount of the charge to tax under section 4 on the death of another person (“A”) would be different if a claim under subsection (1) had been made for brought-forward allowance for P, and

(c)the amount of the charge to tax under section 4 on the death of P, and the amount of the charge to tax under section 4 on the death of any person who is neither P nor A, would not have been different if a claim under subsection (1) had been made for brought-forward allowance for P.

(5)A claim for brought-forward allowance for P may be made—

(a)by A's personal representatives within the allowed period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on A's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(6)In subsection (5)(a) “the allowed period” means—

(a)the period of 2 years from the end of the month in which A dies or (if it ends later) the period of 3 months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(7)A claim under subsection (5) made within either of the periods mentioned in subsection (6)(a) may be withdrawn no later than one month after the end of the period concerned.

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F71Words in s. 8L heading inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 11(a)

F72Words in s. 8L(1) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 11(b)

8MResidence nil-rate amount: cases involving conditional exemptionU.K.

[F73(1)This section applies where—

(a)a person (“D”) dies on or after 6 April 2017,

(b)ignoring the application of this section, D's residence nil-rate amount is greater than nil, and

(c)some or all of the transfer of value under section 4 on D's death is a conditionally exempt transfer of property consisting of, or including, any of the following—

(i)some or all of a qualifying residential interest;

(ii)some or all of a residential property interest, at least some portion of which is closely inherited, and which is not, and is not included in, a qualifying residential interest;

(iii)one or more closely inherited assets that are not residential property interests.

(2)Subsections (2B) to (2E) apply for the purposes of sections 8E to 8FD if—

(a)ignoring the application of this section, D's residence nil-rate amount is given by section 8E, and

(b)some or all of the transfer of value under section 4 is a conditionally exempt transfer of property mentioned in subsection (1)(c)(i).

(2A)In subsections (2B) to (2E), but subject to subsection (3)(a), “the exempt percentage of the QRI” is given by—

where—

X is the attributable portion of the value transferred by the conditionally exempt transfer,

QRI is the attributable portion of the value transferred by the transfer of value under section 4, and

the attributable portion” means the portion (which may be the whole) attributable to the qualifying residential interest.

(2B)If—

(a)the exempt percentage of the QRI is 100%, and

(b)D has no entitlement to a downsizing addition,

D's residence nil-rate amount and amount available for carry-forward are given by section 8F(2) and (3) (instead of section 8E).

(2C)If—

(a)the exempt percentage of the QRI is 100%, and

(b)D has an entitlement to a downsizing addition,

D's residence nil-rate amount and amount available for carry-forward are given by section 8FD(3) to (6) (instead of section 8E as modified by section 8FC(2)).

See also subsection (2G).

(2D)If—

(a)the exempt percentage of the QRI is less than 100%, and

(b)D has no entitlement to a downsizing addition,

D's residence nil-rate amount and amount available for carry-forward are given by section 8E but as if, in subsections (2) to (5) of that section, each reference to NV/100 were a reference to NV/100 multiplied by the percentage that is the difference between 100% and the exempt percentage of the QRI.

(2E)If—

(a)the exempt percentage of the QRI is less than 100%, and

(b)D has an entitlement to a downsizing addition,

D's residence nil-rate amount and amount available for carry-forward are given by section 8E as modified by section 8FC(2), but as if the reference to NV/100 in section 8FC(2)(a) were a reference to NV/100 multiplied by the percentage that is the difference between 100% and the exempt percentage of the QRI.

See also subsection (2G).

(2F)Subsection (2G) applies for the purposes of sections 8FA to 8FD if—

(a)some or all of the transfer of value under section 4 is a conditionally exempt transfer of property mentioned in subsection (1)(c)(ii) or (iii) (or both),

(b)D has an entitlement to a downsizing addition, and

(c)DA exceeds Y (see subsection (2H)).

(2G)Subject to subsection (3)(aa) and (ab), the amount of the downsizing addition is treated as reduced by whichever is the smaller of—

(a)the difference between DA and Y, and

(b)Z.

(2H)In subsections (2F) and (2G)—

(2I)For the purposes of the definition of “Z”, “the closely inherited conditionally exempt value” of a residential property interest means—

(a)so much of the value transferred by the conditionally exempt transfer as is attributable to the interest, multiplied by

(b)the percentage of the interest which is closely inherited.]

(3)[F74For the purposes of calculating tax chargeable under section 32 or 32A by reference to a chargeable event related to property forming the subject-matter of the conditionally exempt transfer where D is the relevant person for the purposes of section 33—

(a)where subsections (2B) to (2E) apply and the chargeable event relates to property mentioned in subsection (1)(c)(i), in calculating the exempt percentage of the QRI, X is calculated as if the attributable portion of the value transferred by the conditionally exempt transfer had not included the portion (which may be the whole) of the qualifying residential interest on which the tax is chargeable,

(aa)where subsection (2G) applies and the chargeable event relates to property mentioned in subsection (1)(c)(ii), Z is calculated as if it had not included the portion (which may be the whole) of the closely inherited conditionally exempt value of the residential property interest on which the tax is chargeable,

(ab)where subsection (2G) applies and the chargeable event relates to an asset mentioned in subsection (1)(c)(iii) (“the taxable asset”), Z is calculated as if it had not included so much of the value transferred by the conditionally exempt transfer as is attributable to the taxable asset,]

(b)[F75in the cases mentioned in paragraphs (a), (aa) and (ab),] section 33 has effect as if for subsection (1)(b)(ii) there were substituted—

(ii)if the relevant person is dead, the rate or rates that would have applied to that amount in accordance with section 8D(2) and (3) above and the appropriate provision of section 7 above if—

(a)that amount had been added to the value transferred on the relevant person's death, and

(b)the unrelieved portion of that amount had formed the highest part of that value., F76...

(c)for the purposes of that substituted section 33(1)(b)(ii) “the unrelieved portion” of the amount on which tax is chargeable is that amount itself [F77reduced (but not below nil) by] the amount (if any) by which—

(i)D's residence nil-rate amount for the purposes of the particular calculation under section 33, exceeds

(ii)D's residence nil-rate amount for the purposes of the charge to tax under section 4 on D's death [F78, and

(d)where the chargeable event relates to property mentioned in subsection (1)(c)(i) and subsections (2B) to (2E) do not apply, section 33 has effect as if in subsection (1)(b)(ii) after “in accordance with” there were inserted “ section 8D(2) and (3) above and ”.]

(4)The following provisions of this section apply if immediately before D's death there is a person (“P”) who is D's spouse or civil partner.

(5)For the purposes of calculating tax chargeable under section 32 or 32A by reference to a chargeable event related to [F79property which forms the subject-matter of the conditionally exempt transfer where the chargeable event] occurs after P's death, the amount that would otherwise be D's residence nil-rate amount for those purposes is reduced by the amount (if any) by which P's residence nil-rate amount, or the residence nil-rate amount of any person who dies after P but before the chargeable event occurs, was increased by reason of an amount being available for carry-forward from D's death.

(6)Where tax is chargeable under section 32 or 32A by reference to a chargeable event related to [F80property which forms the subject-matter of the conditionally exempt transfer and the chargeable event] occurs before P's death, section 8G(3) has effect for the purpose of calculating P's brought-forward allowance as if—

(a)before the “and” at the end of paragraph (c) there were inserted—

(ca)reduce that total (but not below nil) by deducting from it the recapture percentage,,

(b)in paragraph (d), before “total”, in both places, there were inserted “reduced”, and

(c)the reference to the recapture percentage were to the percentage given by—

where—

REE is the residential enhancement at the time of the chargeable event, and

TA is the amount on which tax is chargeable under section 32 or 32A.

(7)If subsection (6) has applied by reason of a previous event or events related to [F81property which forms the subject-matter of the conditionally exempt transfer], the reference in subsection (6)(c) to the fraction—

]

Textual Amendments

F48Ss. 8D-8M inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 9(4)

F73S. 8M(1)-(2I) substituted for s. 8M(1)(2) (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(2)

F74S. 8M(3)(a)-(ab) and words substituted for s. 8M(3)(a) and words (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(3)

F75Words in s. 8M(3)(b) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(4)(a)

F76Word in s. 8M(3)(b) omitted (15.9.2016) by virtue of Finance Act 2016 (c. 24), Sch. 15 para. 12(4)(b)

F77Words in s. 8M(3)(c) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(4)(c)

F78S. 8M(3)(d) and word inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(4)(d)

F79Words in s. 8M(5) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(5)

F80Words in s. 8M(6) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(6)

F81Words in s. 8M(7) substituted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 15 para. 12(7)

9 Transitional provisions on reduction of tax.U.K.

The transitional provisions in Schedule 2 to this Act shall have effect in relation to any enactment by virtue of which tax is reduced by the substitution of [F82a new Table] in Schedule 1.

Textual Amendments

F82Finance Act 1986 Sch. 19, para. 4with effect from 18March 1986.Originally

“new Tables”.

Dispositions that are not transfers of value [F83(and omissions that do not give rise to deemed dispositions)] U.K.

Textual Amendments

F83Words in s. 10 cross-heading inserted (15.9.2016) by Finance Act 2016 (c. 24), s. 94(2)

10 Dispositions not intended to confer gratuitous benefit.U.K.

(1)A disposition is not a transfer of value if it is shown that it was not indented, and was not made in a transaction intended, to confer any gratuitous benefit on any person and either—

(a)that it was made in a transaction at arm’s length between persons not connected with each other, or

(b)that it was such as might be expected to be made in a transaction at arm’s length between persons not connected with each other.

(2)Subsection (1) above shall not apply to a sale of [F84unquoted shares or unquoted debentures] unless it is shown that the sale was at a price freely negotiated at the time of the sale or at a price such as might be expected to have been freely negotiated at the time of the sale.

(3)In this section—

Textual Amendments

F84Finance Act 1987 Sch. 8, para. 1,with effect from 17March 1987.Originally

“shares or debentures not quoted on a recognised stock exchange”.

11 Dispositions for maintenance of family.U.K.

(1)A disposition is not a transfer of value if it is made by one party to a marriage [F85or civil partnership] in favour of the other party or of a child of either party and is—

(a)for the maintenance of the other party, or

(b)for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.

(2)A disposition is not a transfer of value if it is made in favour of a child who is not in the care of a parent of his and is for his maintenance, education or training for a period ending not later than the year in which—

(a)he attains the age of eighteen, or

(b)after attaining that age he ceases to undergo full-time education or training;

but paragraph (b) above applies only if before attaining that age the child has for substantial periods been in the care of the person making the disposition.

(3)A disposition is not a transfer of value if it is made in favour of a dependent relative of the person making the disposition and is a reasonable provision for his care or maintenance.

(4)A disposition is not a transfer of value if it is made in favour of an illegitimate child of the person making the disposition and is for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.

(5)Where a disposition satisfies the conditions of the preceding provisions of this section to a limited extent only, so much of it as satisfies them and so much of it as does not satisfy them shall be treated as separate dispositions.

(6)In this section—

Textual Amendments

F86S. 11(6): definition of "civil partnership" inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 4(3)(b)

F87S. 11(6): words in definition of "dependent relative" inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 4(3)(a)(i)

F88S. 11(6): words in definition of "dependent relative" substituted (5.12.2005 with effect in accordance with reg. 1(2) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 4(3)(a)(ii)

12 Dispositions allowable for income tax or conferring under pension scheme.U.K.

(1)A disposition made by any person is not a transfer of value if it is allowable in computing that person’s profits or gains for the purposes of income tax or corporation tax or would be so allowable if those profits or gains were sufficient and fell to be so computed.

(2)Without prejudice to subsection (1) above, a disposition made by any person is not a transfer of value if [F89it is a contribution under a registered pension scheme [F90, a qualifying non-UK pension scheme or a] section 615(3) scheme in respect of an employee of the person making the disposition.]

[F91(2ZA)Where a person who is a member of a registered pension scheme, a qualifying non-UK pension scheme or a section 615(3) scheme omits to exercise pension rights under the pension scheme, section 3(3) above does not apply in relation to the omission.]

F92[F93(2A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F92(2B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F92(2C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F92(2D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F92(2E). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2F)For the purposes of this section—

(a)a person omits to exercise pension rights under a pension scheme if he does not become entitled to the whole or any part of a pension or lump sum (or both) under the pension scheme at a time when he was eligible to become so entitled (whether or not he does become entitled to any other benefits under the pension scheme); F94. . .

F94(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2G)In this section—

F98(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F98(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)Where a disposition satisfies the conditions of the preceding provisions of this section to a limited extent only, so much of it as satisfies them and so much of it as does not satisfy them shall be treated as separate dispositions.

Textual Amendments

F89Words in s. 12(2) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 203(2)(a), 284 (with Sch. 36)

F90Words in s. 12(2) substituted (retrospective to 6.4.2006) by Finance Act 2008 (c. 9), s. 92, Sch. 29 para. 18(2)(8)

F91S. 12(2ZA) inserted (with effect as mentioned in Sch. 16 paras. 85, 105 of the amending Act) by Finance Act 2011 (c. 11), s. 65, Sch. 16 para. 47(2)

F92S. 12(2A)-(2E) omitted (with effect as mentioned in Sch. 16 paras. 85, 105 of the amending Act) by virtue of Finance Act 2011 (c. 11), s. 65, Sch. 16 para. 47(3)

F93S. 12(2A)-(2G) inserted (6.4.2006) by Finance Act 2006 (c. 25), s. 160, Sch. 22 paras. 2, 12

F94S. 12(2F)(b) and preceding word omitted (with effect as mentioned in Sch. 16 paras. 85, 105 of the amending Act) by virtue of Finance Act 2011 (c. 11), s. 65, Sch. 16 para. 50(2)

F95Words in s. 12(2G) substituted (15.9.2016) by Finance Act 2016 (c. 24), s. 94(3)

F96S. 12(2G): definitions omitted (with effect as mentioned in Sch. 16 paras. 85, 105 of the amending Act) by virtue of Finance Act 2011 (c. 11), s. 65, Sch. 16 para. 50(3)(a)

F97S. 12(2G): words in definition of "pension" substituted (with effect as mentioned in Sch. 16 paras. 85, 105 of the amending Act) by Finance Act 2011 (c. 11), s. 65, Sch. 16 para. 50(3)(b)

F98S. 12(3)(4) repealed (6.4.2006) by Finance Act 2004 (c. 12), ss. 203(2)(b), 284, 326, Sch. 42 Pt. 3 (with Sch. 36)

[F9912APension drawdown fund not used up: no deemed dispositionU.K.

(1)Where a person has a drawdown fund, section 3(3) above does not apply in relation to any omission that results in the fund not being used up in the person's lifetime.

(2)For the purposes of subsection (1) above, a person has a drawdown fund if the person has—

(a)a member's drawdown pension fund,

(b)a member's flexi-access drawdown fund,

(c)a dependant's drawdown pension fund,

(d)a dependant's flexi-access drawdown fund,

(e)a nominee's flexi-access drawdown fund, or

(f)a successor's flexi-access drawdown fund, and

in respect of a money purchase arrangement under a registered pension scheme.

(3)For the purposes of subsection (1) above, a person also has a drawdown fund if sums or assets held for the purposes of a money purchase arrangement under a corresponding scheme would, if that scheme were a registered pension scheme, be the person's—

(a)member's drawdown pension fund,

(b)member's flexi-access drawdown fund,

(c)dependant's drawdown pension fund,

(d)dependant's flexi-access drawdown fund,

(e)nominee's flexi-access drawdown fund, or

(f)successor's flexi-access drawdown fund,

in respect of the arrangement.

(4)In this section—

Textual Amendments

F99S. 12A inserted (with effect in accordance with s. 94(5) of the amending Act) by Finance Act 2016 (c. 24), s. 94(4)

13 Dispositions by close companies for benefit of employees.U.K.

(1)A disposition of property made to trustees by a close company whereby the property is to be held on trusts of the description specified in section 86(1) below is not a transfer of value if the persons for whose benefit the trusts permit the property to be applied include all or most of either—

(a)the persons employed by or holding office with the company, or

(b)the persons employed by or holding office with the company or any one or more subsidiaries of the company.

(2)Subsection (1) above shall not apply if the trusts permit any of the property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of—

(a)a person who is a participator in the company making the disposition, or

(b)any other person who is a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for this section would have been a transfer of value, or

(c)any other person who has been a participator in any such company as is mentioned in paragraph (a) or (b) above at any time after, or during the ten years before, the disposition made by that company, or

(d)any person who is connected with any person within paragraph (a), (b) or (c) above.

(3)The participators in a company who are referred to in subsection (2) above do not include any participator who—

(a)is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b)on a winding-up of the company would not be entitled to 5 per cent. or more of its assets.

(4)In determining whether the trusts permit property to be applied as mentioned in subsection (2) above, no account shall be taken—

(a)of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident, or

(b)if the trusts are those of a profit sharing scheme approved under [F100Schedule 9 to the M3Taxes Act 1988], of any power to appropriate shares in pursuance of the scheme [F101; or].

[F101(c)if the trusts are those of [F102a share incentive plan approved under Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003] , of any power to appropriate shares to, or acquire shares on behalf of, individuals under the plan.]

(5)In this section—

and references in subsections (2) and (3) above to a participator in a company shall, in the case of a company which is not a close company, be construed as references to a person who would be a participator in the company if it were a close company.

Textual Amendments

F100 Substituted by Income and Corporation Taxes Act 1988 (c. 1. SIF 63:1), Sch. 29, para. 32.Originally

“the Finance Act 1978”.

F101S. 13(4)(c) and the word “or”immediately preceding it inserted (28.7.2000) by 2000 c. 17, s. 138(2)

F102Words in s. 13(4)(c) substituted (with effect as mentioned in s. 723(1)(a)(b) (subject to Sch. 7) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), ss. 722, 723(1), Sch. 6 para. 151(1)(a)(2)

F103Companies Act 1989 s. 144(4)and Sch. 18 para. 30(2),with effect from the appointed day—on and after 1November 1990 (S.I. 1990 No.1392).Originally

“the same meaning as in”.

F105Companies Consolidation (Consequential Provisions) Act 1985 (c. 9, SIF 27), Sch. 2,with effect from 1July 1985.Originally

“Companies Act 1948”.

Marginal Citations

[F10713ADispositions by close companies to employee-ownership trustsU.K.

(1)A disposition of property made to trustees by a close company (“C”) whereby the property is to be held on trusts of the description specified in section 86(1) is not a transfer of value if—

(a)C meets the trading requirement,

(b)the trusts are of a settlement which meets the all-employee benefit requirement, and

(c)the settlement does not meet the controlling interest requirement immediately before the beginning of the tax year in which the disposition of property occurs but does meet it at the end of that year.

(2)Sections 236I, 236J, 236K, 236M and 236T (but not 236L) of the 1992 Act apply to determine whether—

(a)C meets the trading requirement;

(b)the settlement meets the all-employee benefit requirement;

(c)the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3)In this section—

Textual Amendments

F107S. 13A inserted (with effect in accordance with Sch. 37 para. 10(2) of the amending Act) by Finance Act 2014 (c. 26), Sch. 37 para. 10(1)

14 Waiver of remuneration.U.K.

(1)Subject to subsection (2) below, the waiver or repayment of an amount of remuneration is not a transfer of value if, apart from the waiver or repayment, that amount [F108would be earnings, or would be treated as earnings, and would constitute employment income (see section 7(2)(a) or (b) of the Income Tax (Earnings and Pensions) Act 2003)] .

(2)Where, apart from the waiver or repayment, the amount of the remuneration would be allowable as a deduction in computing for the purposes of income tax or corporation tax the profits or gains or losses of the person by whom it is payable or paid, this section shall apply only if, by reason of the waiver or repayment, it is not so allowed or is otherwise brought into charge in computing those profits or gains or losses.

Textual Amendments

F108Words in s. 14(1) substituted (with effect as mentioned in s. 723(1)(a)(b) (subject to Sch. 7) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), ss. 722, 723(1), Sch. 6 para. 152

15 Waiver of dividends.U.K.

A person who waives any dividend on shares of a company within twelve months before any right to the dividend has accrued does not by reason of the waiver make a transfer of value.

16 Grant of tenancies of agricultural property.U.K.

(1)The grant of a tenancy of agricultural property in the United Kingdom, the Channel Islands or the Isle of Man for use for agricultural purposes is not a transfer of value by the grantor if he makes it for full consideration in money or money’s worth.

(2)Expressions used in subsection (1) above and in Chapter II of Part V of this Act have the same meaning in that subsection as in that Chapter.

17 Changes in distribution of deceased’s estate, etc.U.K.

None of the following is a transfer of value—

(a)a variation or disclaimer to which section 142(1) below applies;

(b)a transfer to which section 143 below applies;

F109(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)the renunciation of a claim to legitim [F110or rights under section 131 of the Civil Partnership Act 2004] within the period mentioned in section 147(6) below.

PART IIU.K. EXEMPT TRANSFERS

CHAPTER IU.K. GENERAL

18 Transfers between spouses [F111or civil partners].U.K.

(1)A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which becomes comprised in the estate of the transferor’s spouse [F112or civil partner] or, so far as the value transferred is not so attributable, to the extent that that estate is increased.

(2)If, immediately before the transfer, the transferor but not the transferor’s spouse [F113or civil partner] is domiciled in the United Kingdom the value in respect of which the transfer is exempt (calculated as a value on which no tax is chargeable) shall not exceed [F114the exemption limit at the time of the transfer,] less any amount previously taken into account for the purposes of the exemption conferred by this section.

[F115(2A)For the purposes of subsection (2), the exemption limit is the amount shown in the second column of the first row of the Table in Schedule 1 (upper limit of portion of value charged at rate of nil per cent).]

(3)Subsection (1) above shall not apply in relation to property if the testamentary or other disposition by which it is given—

(a)takes effect on the termination after the transfer of value of any interest or period, or

(b)depends on a condition which is not satisfied within twelve months after the transfer;

but paragraph (a) above shall not have effect by reason only that the property is given to a spouse [F116or civil partner] only if he survives the other spouse [F116or civil partner] for a specified period.

(4)For the purposes of this section, property is given to a person if it becomes his property or is held on trust for him.

Textual Amendments

F111Words in s. 18 sidenote inserted (5.12.2005) by virtue of The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 7(5)

F114Words in s. 18(2) substituted (with effect in accordance with s. 178(4) of the amending Act) by Finance Act 2013 (c. 29), s. 178(2)

F115S. 18(2A) inserted (with effect in accordance with s. 178(4) of the amending Act) by Finance Act 2013 (c. 29), s. 178(3)

19 Annual exemption.U.K.

(1)Transfers of value made by a transferor in any one year are exempt to the extent that the values transferred by them (calculated as values on which no tax is chargeable) do not exceed £3,000.

(2)Where those values fall short of £3,000, the amount by which they fall short shall, in relation to the next following year, be added to the £3,000 mentioned in subsection (1) above.

(3)Where those values exceed £3,000, the excess—

(a)shall, as between transfers made on different days, be attributed so far as possible to a later rather than an earlier transfer, and

(b)shall, as between transfers made on the same day, be attributed to them in proportion to the values transferred by them.

[F117(3A)A transfer of value which is a potentially exempt transfer—

(a)shall in the first instance be left out of account for the purposes of subsections (1) to (3) above; and

(b)if it proves to be a chargeable transfer, shall for the purposes of those subsections be taken into account as if, in the year in which it was made, it was made later than any transfer of value which was not a potentially exempt transfer.]

(4)In this section “year” means period of twelve months ending with 5th April.

(5)Section 3(4) above shall not apply for the purposes of this section (but without prejudice to sections 57 and 94(5) below).

Textual Amendments

F117Finance Act 1986 Sch. 19, para. 5,in relation to transfers of value made on or after 18March 1986.

20 Small gifts.U.K.

(1)Transfers of value made by a transferor in any one year by outright gifts to any one person are exempt if the values transferred by them (calculated as values on which no tax is chargeable) do not exceed £250.

(2)In this section “year” means period of twelve months ending with 5th April.

(3)Section 3(4) above shall not apply for the purposes of this section.

21 Normal expenditure out of income.U.K.

(1)A transfer of value is an exempt transfer if, or to the extent that, it is shown—

(a)that it was made as part of the normal expenditure of the transferor, and

(b)that (taking one year with another) it was made out of his income, and

(c)that, after allowing for all transfers of value forming part of his normal expenditure, the transferor was left with sufficient income to maintain his usual standard of living.

(2)A payment of a premium on a policy of insurance on the transferor’s life, or a gift of money or money’s worth applied, directly or indirectly, in payment of such a premium, shall not for the purposes of this section be regarded as part of his normal expenditure if, when the insurance was made or at any earlier or later time, an annuity was purchased on his life, unless it is shown that—

(a)the purchase of the annuity, and

(b)the making or any variation of the insurance or of any prior insurance for which the first-mentioned insurance was directly or indirectly substituted,

were not associated operations.

(3)So much of a purchased life annuity (within the meaning of [F118section 423 of the Income Tax (Trading and Other Income) Act 2005] as is, [F119exempt from income tax under section 717 of that Act] , shall not be regarded as part of the transferor’s income for the purposes of this section.

(4)Subsection (3) above shall not apply to annuities purchased before 13th November 1974.

(5)Section 3(4) above shall not apply for the purposes of this section.

Textual Amendments

F118Words in s. 21(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 882, 883, Sch. 1 para. 395(a) (with Sch. 2)

F119Words in s. 21(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 882, 883, Sch. 1 para. 395(b) (with Sch. 2)

22 Gifts in consideration of marriage [F120or civil partnership].U.K.

(1)Transfers of value made by gifts in consideration of marriage [F121or civil partnership] are exempt to the extent that the values transferred by such transfers made by any one transferor in respect of any one marriage [F121or civil partnership](calculated as values on which no tax is chargeable) do not exceed—

(a)in the case of gifts within subsection (2) below by a parent of a party to the marriage [F121or civil partnership] , £5,000,

(b)in the case of other gifts within subsection (2) below, £2,500, and

(c)in any other case £1,000;

any excess being attributed to the transfers in proportion to the values transferred.

(2)A gift is within this subsection if—

(a)it is an outright gift to a child or remoter descendant of the transferor or

(b)the transferor is a parent or remoter ancestor of either party to the marriage [F122or civil partnership] , and either the gift is an outright gift to the other party to the marriage [F122or civil partnership] or the property comprised in the gift is settled by the gift, or

(c)the transferor is a party to the marriage [F122or civil partnership] , and either the gift is an outright gift to the other party to the marriage [F122or civil partnership] or the property comprised in the gift is settled by the gift;

and in this section “child” includes an illegitimate child, an adopted child and a step-child and “parent”, “descendant” and “ancestor” shall be construed accordingly.

(3)A disposition which is an outright gift shall not be treated for the purposes of this section as a gift made in consideration of marriage [F123or civil partnership] if, or in so far as, it is a gift to a person other than a party to the marriage [F123or civil partnership] .

(4)A disposition which is not an outright gift shall not be treated for the purposes of this section as a gift made in consideration of marriage [F124or civil partnership] if the persons who are or may become entitled to any benefit under the disposition include any person other than—

[F125(a)the parties to the marriage or civil partnership, any child of the family of the parties to the marriage or civil partnership, or a spouse or civil partner of any such child;]

(b)persons becoming entitled on the failure of trusts for any such [F126child] under which trust property would (subject only to any power of appointment to a person falling within paragraph (a) or (c) of this subsection) vest indefeasibly on the attainment of a specified age or either on the attainment of such an age or on some earlier event, or persons becoming entitled (subject as aforesaid) on the failure of any limitation in tail;

[F127(c)a subsequent spouse or civil partner of a party to the marriage or civil partnership, any child of the family of the parties to any such subsequent marriage or civil partnership, or a spouse or civil partner of any such child;]

(d)persons becoming entitled under such trusts, subsisting under the law of England and Wales or of Northern Ireland, as are specified in section 33(1) of the M4Trustee Act 1925 or section 34(1) of the M5Trustee Act (Northern Ireland) 1958 (protective trusts), the principal beneficiary being a person falling within paragraph (a) or (c) of this subsection, or under such trusts, modified by the enlargement, as respects any period during which there is no such [F128child] as aforesaid in existence, of the class of potential beneficiaries specified in paragraph (ii) of the said section 33(1) or paragraph (b) of the said section 34(1);

(e)persons becoming entitled under trusts subsisting under the law of Scotland and corresponding with such trusts as are mentioned in paragraph (d) above;

(f)as respects a reasonable amount of remuneration, the trustees of the settlement.

[F129(4A)In subsection (4) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.]

(5)F130. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)Section 3(4) above shall not apply for the purposes of this section (but without prejudice to section 57 below).

Textual Amendments

F120Words in s. 22 sidenote inserted (5.12.2005) by virtue of The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(8)

F124Words in s. 22(4) inserted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(5)(a)

F125S. 22(4)(a) substituted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(5)(b)

F126Word in s. 22(4)(b) substituted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(5)(c)

F127S. 22(4)(c) substituted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(5)(d)

F128Word in s. 22(4)(d) substituted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(5)(e)

F129S. 22(4A) inserted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(6)

F130S. 22(5) omitted (5.12.2005 with effect in accordance with reg. 1(3) of the amending S.I.) by virtue of The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 8(7)

Marginal Citations

23 Gifts to charities [F131or registered clubs].U.K.

(1)Transfers of value are exempt to the extent that the values transferred by them are attributable to property which is given to charities [F132or registered clubs].

(2)Subsection (1) above shall not apply in relation to property if the testamentary or other disposition by which it is given—

(a)takes effect on the termination after the transfer of value of any interest or period, or

(b)depends on a condition which is not satisfied within twelve months after the transfer, or

(c)is defeasible;

and for this purpose any disposition which has not been defeated at a time twelve months after the transfer of value and is not defeasible after that time shall be treated as not being defeasible (whether or not it was capable of being defeated before that time).

(3)Subsection (1) above shall not apply in relation to property which is an interest in other property if—

(a)that interest is less than the donor’s, or

(b)the property is given for a limited period;

and for this purpose any question whether an interest is less than the donor’s shall be decided as at a time twelve months after the transfer of value.

(4)Subsection (1) above shall not apply in relation to any property if—

(a)the property is land or a building and is given subject to an interest reserved or created by the donor which entitled him, his spouse [F133or civil partner] or a person connected with him to possession of, or to occupy, the whole or any part of the land or building rent-free or at a rent less than might be expected to be obtained in a transaction at arm’s length between persons not connected with each other, or

(b)the property is not land or a building and is given subject to an interest reserved or created by the donor other than—

(i)an interest created by him for full consideration in money or money’s worth, or

(ii)an interest which does not substantially affect the enjoyment of the property by the person or body to whom it is given;

and for this purpose any question whether property is given subject to an interest shall be decided as at a time twelve months after the transfer of value.

(5)[F134In the case of any property which is given to charities,] subsection (1) above shall not apply in relation to [F135the] property if it or any part of it may become applicable for purposes other than charitable purposes or those of a body mentioned in section 24, [F136or 25] below [F137or, where it is land, of a body mentioned in section 24A below].

[F138(5A)In the case of any property which is given to a registered club, subsection (1) above shall not apply in relation to the property if it or any part of it may become applicable for purposes other than—

(a)the purposes of the club in question;

(b)the purposes of another registered club;

(c)the purposes of the governing body of an eligible sport for the purposes of which the club in question exists; or

(d)charitable purposes.]

[F139(6)For the purposes of this section—

(a)property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only; and

(b)property is given to registered clubs if it becomes the property of registered clubs or is held on trust for purposes of registered clubs only;

and “donor” shall be construed accordingly.

(7)For the purposes of this section “registered club” and “eligible sport” have the same meaning as in Chapter 9 of Part 13 of the Corporation Tax Act 2010.]

Textual Amendments

F131S. 23: words in title inserted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(6) (with Sch. 2)

F132Words in s. 23(1) inserted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(2) (with Sch. 2)

F134Words in s. 23(5) inserted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(3)(a) (with Sch. 2)

F135Word in s. 23(5) inserted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(3)(b) (with Sch. 2)

F136Words in s. 23(5) substituted (31.7.1998 with effect in relation to any transfer of value made on or after 17.3.1998) by 1998 c. 36, s. 143(2)(a)

F137Finance Act 1989 s. 171(2),in relation to transfers of value made on or after 14March 1989.

F138S. 23(5A) inserted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(4) (with Sch. 2)

F139S. 23(6)(7) substituted (1.4.2010 with effect as mentioned in s. 1184(1) of the amending Act) for s. 23(6) by Corporation Tax Act 2010 (c. 4), ss. 1177, 1184, Sch. 1 para. 189(5) (with Sch. 2)

Modifications etc. (not altering text)

C14S. 23 modified (24.7.2002 with effect as mentioned in s. 58(4) of the amending Act) by 2002 c. 23, s. 58, Sch. 18 Pt. 3, para. 9(2)

24 Gifts to political parties.U.K.

(1)Transfers of value are exempt to the extent that the values transferred by them—

(a)are attributable to property which becomes the property of a political party qualifying for exemption under this section; . . . F140

(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F140

(2)A political party qualifies for exemption under this section if, at the last general election preceding the transfer of value,—

(a)two members of that party were elected to the House of Commons, or

(b)one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party.

(3)Subsections (2) to (5) of section 23 above shall apply in relation to subsection (1) above as they apply in relation to section 23(1).

(4)For the purposes of section 23(2) to (5) as they apply by virtue of subsection (3) above property is given to any person or body if it becomes the property of or is held on trust for that person or body, and “donor” shall be construed accordingly.

Textual Amendments

F140 Repealed by Finance Act 1988 s. 137and Sch.14, Part Xin relation to transfers of value made on or after 15March 1988.

Modifications etc. (not altering text)

C15S. 24 applied (6.3.1992 with effect as mentioned in s. 289(1)(2) of the applying Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 264(8), 289(with ss. 60, 101(1), 201(3)).

[F14124A Gifts to housing associations.U.K.

(1)A transfer of value is exempt to the extent that the value transferred by it is attributable to land in the United Kingdom given to a [F142body falling within subsection (2) below].

[F143(2)A body falls within this subsection if it is—

[F144(za)a non-profit registered provider of social housing;]

(a)a registered social landlord within the meaning of Part I of the Housing Act 1996;

(b)a registered housing association within the meaning of the Housing Associations Act 1985; or

(c)a registered housing association within the meaning of Part II of the Housing (Northern Ireland) Order 1992.]]

(3)Subsections (2) to (5) of section 23 and subsection (4) of section 24 above shall apply in relation to subsection (1) above as they apply in relation to section 24(1).

Textual Amendments

F141Finance Act 1989 s. 171(1),with effect from 14March 1989.

F142Words in s. 24A(1) substituted (1.10.1996) by S.I. 1996/2325, art. 5(1), Sch. 2 para. 12(2)

F143S. 24A(2) substituted (1.10.1996) by S.I. 1996/2325, art. 5(1), Sch. 2 para. 12(3)

25 Gifts for national purposes, etc.U.K.

(1)A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property which becomes the property of a body within Schedule 3 to this Act.

(2)Subsections (2) to (5) of section 23 and subsection (4) of section 24 above shall apply in relation to subsection (1) above as they apply in relation to section 24(1), except that section 23(3) shall not prevent subsection (1) above from applying in relation to property consisting of the benefit of an agreement restricting the use of land.

[F145(3)A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property that is being transferred in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation).]

Textual Amendments

F145S. 25(3) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 27

F14626. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

Textual Amendments

F146S. 26 repealed (31.7.1998 with effect as mentioned in s. 143(1) of the amending Act) by 1998 c. 36, ss. 143(1), 165(1), Sch. 27 Pt. IV, note 1

[F14726A Potentially exempt transfer of property subsequently held for national purposes etc.U.K.

A potentially exempt transfer which would (apart from this section) have proved to be a chargeable transfer shall be an exempt transfer to the extent that the value transferred by it is attributable to property which has been or could be designated under section 31(1) below and which, during the period beginning with the date of the transfer and ending with the death of the transferor,—

(a)has been disposed of by sale by private treaty to a body mentioned in Schedule 3 to this Act or has been disposed of to such a body otherwise than by sale, or

(b)has been disposed of in pursuance of section 230 below [F148or in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation)].]

Textual Amendments

F147Finance Act 1986 Sch. 19, para. 6,in relation to transfers of value made on or after 18March 1986.

F148Words in s. 26A(b) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 28

27 Maintenance funds for historic buildings, etc.U.K.

(1)[F149Subject to subsection (1A) below,] a transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property which by virtue of the transfer becomes comprised in a settlement and in respect of which—

(a)a direction under paragraph 1 of Schedule 4 to this Act has effect at the time of the transfer, or

(b)such a direction is given after the time of the transfer.

[F150(1A)Subsection (1) above does not apply in the case of a direction given after the time of the transfer unless the claim for the direction (if it is not made before that time) is made no more than two years after the date of that transfer, or within such longer period as the Board may allow.]

(2)Subsections (2) and (3) of the section 23 and subsection (4) of section 24 above shall apply in relation to subsection (1) above as they apply in relation to section 24(1).

Textual Amendments

F149Words in s. 27(1) inserted (31.7.1998 with effect in relation to transfers of value made on or after 17.3.1998) by 1998 c. 36, s. 144(1)(2)

F150S. 27(1A) inserted (31.7.1998 with effect in relation to transfers of value made on or after 17.3.1998) by 1998 c. 36, s. 144(1)(2)

28 Employee trusts.U.K.

(1)A transfer of value made by an individual who is beneficially entitled to shares in a company is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of the company which become comprised in a settlement if—

(a)the trusts of the settlement are of the description specified in section 86(1) below, and

(b)the persons for whose benefit the trusts permit the settled property to be applied include all or most of the persons employed by or holding office with the company.

(2)Subsection (1) above shall not apply unless at the date of the transfer, or at a subsequent date not more than one year thereafter, both the following conditions are satisfied, that is to say—

(a)the trustees—

(i)hold more than one half of the ordinary shares in the company, and

(ii)have powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised on them; and

(b)there are no provisions in any agreement or instrument affecting the company’s constitution or management or its shares or securities whereby the condition in paragraph (a) above can cease to be satisfied without the consent of the trustees.

(3)Where the company has shares or securities of any class giving powers of voting limited to either or both of the following—

(a)the question of winding up the company, and

(b)any question primarily affecting shares or securities of that class,

the reference in subsection (2)(a)(ii) above to all questions affecting the company as a whole shall be read as a reference to all such questions except any in relation to which those powers are capable of being exercised.

(4)Subsection (1) above shall not apply if the trusts permit any of the settled property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of—

(a)a person who is a participator in the company mentioned in subsection (1) above; or

(b)any other person who is a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for section 13 above would have been a transfer of value; or

(c)any other person who has been a participator in the company mentioned in subsection (1) above or in any such company as is mentioned in paragraph (b) above at any time after, or during the ten years before, the transfer of value mentioned in subsection (1) above; or

(d)any person who is connected with any person within paragraph (a), (b) or (c) above.

(5)The participators in a company who are referred to in subsection (4) above do not include any participator who—

(a)is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b)on a winding-up of the company would not be entitled to 5 per cent. or more of its assets.

(6)In determining whether the trusts permit property to be applied as mentioned in subsection (4) above, no account shall be taken of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident.

(7)Subsection (5) of section 13 above shall have effect in relation to this section as it has effect in relation to that section.

[F15128AEmployee-ownership trustsU.K.

(1)A transfer of value made by an individual who is beneficially entitled to shares in a company (“C”) is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of C which become comprised in a settlement if—

(a)C meets the trading requirement,

(b)the settlement meets the all-employee benefit requirement, and

(c)the settlement does not meet the controlling interest requirement immediately before the beginning of the tax year in which the transfer of value is made but does meet it at the end of that year.

(2)Sections 236I, 236J, 236K, 236M and 236T (but not 236L) of the 1992 Act apply to determine whether—

(a)C meets the trading requirement;

(b)the settlement meets the all-employee benefit requirement;

(c)the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3)In this section “tax year” means a year beginning on 6 April and ending on the following 5 April.]

Textual Amendments

F151S. 28A inserted (with effect in accordance with Sch. 37 para. 11(2) of the amending Act) by Finance Act 2014 (c. 26), Sch. 37 para. 11(1)

29 Loans—modifications of exemptions.U.K.

(1)If or to the extent that a transfer of value is a disposition whereby the use of money or other property is allowed by one person to another (“the borrower”), the preceding provisions of this Chapter shall apply to it with the following modification.

(2)For the purposes of section 18 the borrower’s estate shall be treated as increased by an amount equal to the value transferred; and section 18(3) shall not apply.

(3)For the purposes of sections 20 and 22 the transfer of value shall be treated as made by outright gift.

(4)Section 21(1) shall apply as if for the conditions stated in paragraphs (a) and (b) there were substituted the condition that the transfer was a normal one on the part of the transferor.

(5)For the purposes of sections 23 [F152to 25]

(a)the value transferred shall be treated as attributable to the property of which the borrower is allowed the use, and

(b)that property shall be treated as given to, or as becoming the property of, the borrower unless the use allowed includes use for purposes other than charitable purposes or those of a body mentioned in section 24, [F152or 25][F153or where it is land, of a body mentioned in section 24A]

and sections 23(2) to (6), 24 . . . F154, (3) and (4), [F15324A(3)][F152and 25(2)] shall not apply.

Textual Amendments

F152Words in s. 29(5) substituted (31.7.1998 with effect in relation to any transfer of value made on or after 17.3.1998) by 1998 c. 36, s. 143(2)(b)

F153Finance Act 1989 s. 171(3),in relation to transfers of value made on or after 14March 1989.

F154 “(1)(b)”

repealed by Finance Act 1988 s. 148and Sch. 14, Part X,with effect from 15March 1988.

[F15529A Abatement of exemption where claim settled out of beneficiary’s own resources.U.K.

(1)This section applies where—

(a)apart from this section the transfer of value made on the death of any person is an exempt transfer to the extent that the value transferred by it is attributable to an exempt gift, and

(b)the exempt beneficiary, in settlement of the whole or part of any claim against the deceased’s estate, effects a disposition of property not derived from the transfer.

(2)The provisions of this Act shall have effect in relation to the transfer as if—

(a)so much of the relevant value as is equal to the following amount, namely the amount by which the value of the exempt beneficiary’s estate immediately after the disposition is less than it would be but for the disposition, or

(b)where that amount exceeds the relevant value, the whole of the relevant value,

were attributable to such a gift to the exempt beneficiary as is mentioned in subsection (3) below (instead of being attributable to a gift with respect to which the transfer is exempt).

(3)The gift referred to in subsection (2) above is a specific gift with respect to which the transfer is chargeable, being a gift which satisfies the conditions set out in paragraphs (a) and (b) of section 38(1) below.

(4)In determining the value of the exempt beneficiary’s estate for the purposes of subsection (2) above—

(a)no deduction shall be made in respect of the claim referred to in subsection (1)(b) above, and

(b)where the disposition referred to in that provision constitutes a transfer of value—

(i)no account shall be taken of any liability of the beneficiary for any tax on the value transferred, and

(ii)sections 104 and 116 below shall be disregarded.

(5)Subsection (1)(b) above does not apply in relation to any claim against the deceased’s estate in respect of so much of any liability as is, in accordance with this Act, to be taken into account in determining the value of the estate.

(6)In this section—

Textual Amendments

F155Finance Act 1989 s. 172(1),in relation to deaths occurring on or after 27July 1989.

F156Words in s. 29A(6) substituted (with effect in accordance with Sch. 37 para. 12(2) of the amending Act) by Finance Act 2014 (c. 26), Sch. 37 para. 12(1)(a)

F157S. 29A(6): words in the definition of "the exempt beneficiary" inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 10

F158S. 29A(6): words in the definition of “the exempt beneficiary” substituted (31.7.1998 with effect in relation to any transfer of value made on or after 17.3.1998) by 1998 c. 36, s. 143(2)(a)

F159Words in s. 29A(6) substituted (with effect in accordance with Sch. 37 para. 12(2) of the amending Act) by Finance Act 2014 (c. 26), Sch. 37 para. 12(1)(b)

CHAPTER IIU.K. CONDITIONAL EXEMPTION

30 Conditionally exempt transfers. U.K.

(1)A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property—

(a)which, on a claim made for the purpose, is designated by the Treasury under section 31 below, and

(b)with respect to which the requisite undertaking described in that section is given by such person as the Treasury think appropriate in the circumstances of the case [F160or (where the property is an area of land within subsection (1)(d) of that section) with respect to which the requisite undertakings described in that section are given by such person or persons as the Treasury think appropriate in the circumstances of the case.]

(2)A transfer of value exempt with respect to any property under this section or under section 76 of the M6Finance Act 1976 is referred to in this Act as a conditionally exempt transfer of that property.

(3)Subsection (1) above shall not apply to a transfer of value other than one which under section 4 above a person makes on his death unless—

(a)the transferor or his spouse [F161or civil partner] , or the transferor and his spouse [F161or civil partner] between them, have been beneficially entitled to the property throughout the six years ending with the transfer, or

(b)the transferor acquired the property on a death on the occasion of which there was a transfer of value under section 4 above which was itself a conditionally exempt transfer of the property.

[F162(3A)The provisions of this section shall be disregarded in determining under section 3A above whether a transfer of value is a potentially exempt transfer.

(3B)No claim may be made under subsection (1) above with respect to a potentially exempt transfer until the transferor has died.

[F163(3BA)A claim under subsection (1) above must be made no more than two years after the date of the transfer of value to which it relates or, in the case of a claim with respect to a potentially exempt transfer, the date of the death, or (in either case) within such longer period as the Board may allow.]

(3C)Subsection (1) above shall not apply to a potentially exempt transfer to the extent that the value transferred by it is attributable to property which has been disposed of by sale during the period beginning with the date of the transfer and ending with the death of the transferor.]

(4)Subsection (1) above does not apply to a transfer of value to the extent to which it is an exempt transfer under section 18 or 23 above.

Textual Amendments

F160Finance Act 1985 Sch. 26, para. 1,in relation to events occurring after 18March 1985.

F162Finance Act 1986 Sch. 19, para. 7,in relation to transfers of value made on or after 18March 1986.

F163S. 30(3BA) inserted (31.7.1998 with effect in relation to any transfer of value or death on or after 17.3.1998) by 1998 c. 36, s. 142, Sch. 25 para. 2(1)(2)

Modifications etc. (not altering text)

C16 By Finance Act 1985 s. 95,the functions of the Treasury were transferred to the Commissioners of Inland Revenue (“the Board”).

Marginal Citations

31 Designation and undertakings. U.K.

(1)The Treasury may designate under this section—

[F164(a)any relevant object which appears to the Board to be pre-eminent for its national, scientific, historic or artistic interest;

(aa)any collection or group of relevant objects which, taken as a whole, appears to the Board to be pre-eminent for its national, scientific, historic or artistic interest;]

(b)any land which in the opinion of the Treasury is of outstanding scenic or historic or scientific interest;

(c)any building for the preservation of which special steps should in the opinion of the Treasury be taken by reason of its outstanding historic or architectural interest;

[F165(d)any area of land which in the opinion of the Treasury is essential for the protection of the character and amenities of such a building as is mentioned in paragraph (c) above;]

(e)any object which in the opinion of the Treasury is historically associated with such a building as is mentioned in paragraph (c) above.

[F166(1A)Where the transfer of value in relation to which the claim for designation is made is a potentially exempt transfer which (apart from section 30 above) has proved to be a chargeable transfer, the question whether any property is appropriate for designation under this section shall be determined by reference to circumstances existing after the death of the transferor.]

(2)In the case of property within subsection [F167(1)(a)or(aa)] above, the requisite undertaking is that, until the person beneficially entitled to the property dies or the property is disposed of, whether by sale or gift or otherwise—

(a)the property will be kept permanently in the United Kingdom and will not leave it temporarily except for a purpose and a period approved by the Treasury, and

(b)[F168such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it,] will be taken for the preservation of the property and for securing reasonable access to the public.

(3)If it appears to the Treasury, on a claim made for the purpose, that any documents which are designated or to be designated under subsection [F167(1)(a) or (aa)] above contain information which for personal or other reasons ought to be treated as confidential, they may exclude those documents, either altogether or to such extent as they think fit, from so much of an undertaking given or to be given under subsection (2)(b) above as relates to public access.

(4)In the case of other property within subsection (1) above, the requisite undertaking is that, until the person beneficially entitled to the property dies or the property is disposed of, whether by sale or gift or otherwise, [F169such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it,] will be taken—

(a)in the case of land falling within subsection (1)(b) above, for the maintenance of the land and the preservation of its character, and

(b)in the case of any other property, for the maintenance, repair and preservation of the property and, if it is an object falling within subsection (1)(e) above, for keeping it associated with the building concerned;

and for securing reasonable access to the public.

[F170(4A)In the case of an area of land within subsection (1)(d) above (relevant land) there is an additional requisite undertaking, which is that, until the person beneficially entitled to property falling within subsection (4C) below dies, or it is disposed of, whether by sale or gift or otherwise, specified steps will be taken for its maintenance, repair and preservation and for securing reasonable access to the public; and “specified steps” means such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it.

(4B)Where different persons are entitled (either beneficially or otherwise) to different properties falling within subsection (4C) below, subsection (4A) above shall have effect to require separate undertakings as to the maintenance, repair, preservation and access of each of the properties to be given by such persons as the Treasury think appropriate in the circumstances of the case.

(4C)The following property falls within this subsection—

(a)the building for the protection of whose character and amenities the relevant land is in the opinion of the Treasury essential;

(b)any other area (or areas) of land which, in relation to the building, falls (or fall) within subsection (1)(d) above and which either lies (or lie) between the relevant land and the building or is (or are) in the opinion of the Treasury, physically closely connected with the relevant land or the building.

(4D)Where subsection (4A) above requires an undertaking for the maintenance, repair, preservation and access of property, such an undertaking is required notwithstanding that some other undertaking for its maintenance, repair, preservation and access is effective.

(4E)Any undertaking given in pursuance of subsection (4A) above is for the purposes of this Act given with respect to the relevant land.

(4F)It is for the person seeking the designation of relevant land to secure that any undertaking required under subsection (4A) above is given.]

[F171(4FA)For the purposes of this section, the steps agreed for securing reasonable access to the public must ensure that the access that is secured is not confined to access only where a prior appointment has been made.]

[F172(4FB)Subject to subsection (3) above, where the steps that may be set out in any undertaking include steps for securing reasonable access to the public to any property, the steps that may be agreed and set out in that undertaking may also include steps involving the publication of—

(a)the terms of any undertaking given or to be given for any of the purposes of this Act with respect to the property; or

(b)any other information relating to the property which (apart from this subsection) would fall to be treated as confidential;

and references in this Act to an undertaking for access to any property shall be construed as including references to so much of any undertaking as provides for the taking of steps involving any such publication.]

[F173(4G)In a case where—

(a)the transfer of value in question is a potentially exempt transfer which (apart from section 30 above) has proved to be a chargeable transfer, and

(b)at the time of the transferor’s death an undertaking by such a person as is mentioned in section 30(1)(b) above given under paragraph 3(3) of Schedule 4 to this Act or under section [F174258 of the 1992 Act] is in force with respect to any property to which the value transferred by the transfer is attributable,

that undertaking shall be treated for the purposes of this Chapter as an undertaking given under section 30 above.]

[F175(5)In this section—

and in determining under subsection (1)(a) or (aa) above whether an object or a collection or group of objects is pre-eminent, regard shall be had to any significant association of the object, collection or group with a particular place.]

Textual Amendments

F164S. 31(1)(a)(aa) substituted for s. 31(1)(a) (31.7.1998 with effect in relation to the making of any designation on a claim made on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 4(1)(4)

F165Finance Act 1985 Sch. 26, para. 2(2),in relation to events occurring after 18March 1985.Originally

“any land which adjoins such a building as is mentioned in paragraph (c) above and which in the opinion of the Treasury is essential for the protection of the character and amenities of the building.”

F166Finance Act 1986 Sch. 19, para. 8(1),in relation to transfers of value made on or after 18March 1986.

F167Words in s. 31(2)(3) substituted (31.7.1998 with effect in relation to the making of any designation on a claim made on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 4(2)(4)

F168Finance Act 1985 Sch. 26, para. 2(3),in relation to events occurring after 18March 1985.Originally

“reasonable steps”.

F169Finance Act 1985 Sch. 26, para. 2(3),in relation to events occurring after 18March 1985.Originally

“reasonable steps”.

F170Finance Act 1985 Sch. 26, para. 2(4),in relation to events occurring after 18March 1985.

F171S. 31(4FA) inserted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 5(1)(2)

F172S. 31(4FB) inserted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 6(1)(2)

F173Finance Act 1986 Sch. 19, para. 8(2),in relation to transfers of value made on or after 18March 1986.

F174Words in s. 31(4G)(b) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the substituting Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 8(2) (with ss. 60, 101(1), 201(3)).

F175S. 31(5) substituted (31.7.1998 with effect in relation to the making of any designation on a claim made on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 4(3)(4)

Modifications etc. (not altering text)

C17 By Finance Act 1985 s. 95,the functions of the Treasury were transferred to the Commissioners of Inland Revenue (“the Board”).

32 Chargeable events. U.K.

(1)Where there has been a conditionally exempt transfer of any property, tax shall be charged under this section on the first occurrence after the transfer [F176(or, if the transfer was a potentially exempt transfer, after the death of the transferor)] of an event which under this section is a chargeable event with respect to the property.

(2)If the Treasury are satisfied that at any time an undertaking given with respect to the property under section 30 above or [F177subsection (5AA)] below has not been observed in a material respect, the failure to observe the undertaking is a chargeable event with respect to the property.

(3)If—

(a)the person beneficially entitled to the property dies, or

(b)the property is disposed of, whether by sale or gift or otherwise,

the death or disposal is, subject to [F178subsections (4), (4A) and (5)] below, a chargeable event with respect to the property.

(4)A death or disposal is not a chargeable event with respect to any property if the personal representatives of the deceased (or, in the case of settled property, the trustees or the person next entitled) within three years of the death make or, as the case may be, the disposal is—

(a)a disposal of the property by sale by private treaty to a body mentioned in Schedule 3 to this Act, or a disposal of it to such a body otherwise than by sale, or

(b)a disposal in pursuance of section 230 below,

and a death or disposal of the property after such a disposal as is mentioned in paragraph (a) or (b) above is not a chargeable event with respect to the property unless there has again been a conditionally exempt transfer of it after that disposal.

[F179(4A)A death or disposal is not a chargeable event with respect to any property if—

(a)in the case of a death, a person who became beneficially entitled to the property on the death disposes of it in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation) within 3 years of the death, or

(b)in the case of a disposal, the disposal is made in the circumstances described in paragraph 1 of that Schedule,

and a death or disposal of the property after such a disposal as is mentioned in paragraph (a) or (b) is not a chargeable event with respect to the property unless there has again been a conditionally exempt transfer of it after that disposal.]

(5)A death or disposal otherwise than by sale is not a chargeable event with respect to any property if—

(a)the transfer of value made on the death or the disposal is itself a conditionally exempt transfer of the property, or

[F180(b)the condition specified in subsection (5AA) below is satisfied with respect to the property.]

[F181(5AA)The condition referred to in subsection (5)(b) above is satisfied if—

(a)the requisite undertaking described in section 31 above is given with respect to the property by such person as the Board think appropriate in the circumstances of the case, or

(b)(where the property is an area of land within section 31(1)(d) above) the requisite undertakings described in that section are given with respect to the property by such person or persons as the Board think appropriate in the circumstances of the case.]

[F182(5A)This section does not apply where section 32A below applies.]

(6)(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F183

Textual Amendments

F176Finance Act 1986 Sch. 19, para. 9,in relation to transfers on or after 18March 1986.

F177Words in s. 32(2) substituted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(1)(9)

F178Words in s. 32(3) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 29(2)

F179S. 32(4A) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 29(3)

F180S. 32(5)(b) substituted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(2)(9)

F181S. 32(5AA) inserted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(3)(9)

F182Finance Act 1985 Sch. 26, para. 3(2),in relation to events occurring after 18March 1985.

F183 Subss. (6)and (7)repealed by Finance Act 1985 s. 94; Sch. 26, para. 3(3)and Sch. 27, Part XI,in relation to events occurring after 18March 1985.

Modifications etc. (not altering text)

C18 By Finance Act 1985 s. 95,the functions of the Treasury were transferred to the Commissioners of Inland Revenue (“the Board”).

[F18432A Associated properties. U.K.

(1)For the purposes of this section the following properties are associated with each other, namely, a building falling within section 31(1)(c) above and (to the extent that any of the following exists) an area or areas of land falling within section 31(1)(d) above in relation to the building and an object or objects falling within section 31(1)(e) above in relation to the building; and this section applies where there are such properties, which are referred to as associated properties.

(2)Where there has been a conditionally exempt transfer of any property (or part), tax shall be charged under this section in respect of that property (or part) on the first occurrence after the transfer [F185(or, if the transfer was a potentially exempt transfer, after the death of the transferor] of an event which under this section is a chargeable event with respect to that property (or part).

(3)If the Treasury are satisfied that at any time an undertaking given under section 30 above or this section for the maintenance, repair, preservation, access or keeping of any of the associated properties has not been observed in a material respect, then (subject to subsection (10) below) the failure to observe the undertaking is a chargeable event with respect to the whole of each of the associated properties of which there has been a conditionally exempt transfer.

(4)If—

(a)the person beneficially entitled to property dies, or

(b)property (or part of it) is disposed of, whether by sale or gift or otherwise,

then, if the property is one of the associated properties and an undertaking for its maintenance, repair, preservation, access or keeping has been given under section 30 above or this section, the death or disposal is (subject to subsections (5) to (10) below) a chargeable event with respect to the whole of each of the associated properties of which there has been a conditionally exempt transfer.

(5)Subject to subsection (6) below, the death of a person beneficially entitled to property, or the disposal of property (or part), is not a chargeable event if the personal representatives of the deceased (or, in the case of settled property, the trustees or the person next entitled) within three years of the death make or, as the case may be, the disposal is—

(a)a disposal of the property (or part) concerned by sale by private treaty to a body mentioned in Schedule 3 to this Act, or to such a body otherwise than by sale, or

(b)a disposal of the property (or part) concerned in pursuance of section 230 below.

[F186(5A)The death of a person beneficially entitled to property, or the disposal of property, is not a chargeable event if—

(a)in the case of a death, a person who became beneficially entitled to the property on the death disposes of it in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation) within 3 years of the death, or

(b)in the case of a disposal, the disposal is made in the circumstances described in paragraph 1 of that Schedule.]

(6)Where a disposal mentioned in subsection (5)(a) or (b) above is a part disposal, that subsection does not make the event non-chargeable with respect to property other than that disposed of [F187unless—

(a)the requisite undertaking described in section 31 above is given with respect to the property (or part) not disposed of by such person as the Board think appropriate in the circumstances of the case, or

(b)(where any of the property or part not disposed of is an area of land within section 31(1)(d) above) the requisite undertakings described in that section are given with respect to that property (or that part) by such person or persons as the Board think appropriate in the circumstances of the case;

and] in this subsection “part disposal” means a disposal of property which does not consist of or include the whole of each property which is one of the associated properties and of which there has been a conditionally exempt transfer.

(7)Where, after a relevant disposal (that is, a disposal mentioned in subsection (5)(a) or (b) [F188or (5A)(a) or (b)] above made in circumstances where that subsection applies), a person beneficially entitled to the property (or part) concerned dies or the property (or part) concerned is disposed of, the death or disposal is not a chargeable event with respect to the property (or part) concerned unless there has again been a conditionally exempt transfer of the property (or part) concerned after the relevant disposal.

(8)The death of a person beneficially entitled to property, or the disposal of property (or part) otherwise than by sale, is not a chargeable event if—

(a)the transfer of value made on the death or the disposal is itself a conditionally exempt transfer of the property (or part) concerned, or

[F189(b)the condition specified in subsection (8A) below is satisfied with respect to the property (or part) concerned.]

[F190(8A)The condition referred to in subsection (8)(b) above is satisfied if—

(a)the requisite undertaking described in section 31 above is given with respect to the property (or part) by such person as the Board think appropriate in the circumstances of the case, or

(b)(where any of the property or part is an area of land within section 31(1)(d) above) the requisite undertakings described in that section are given with respect to the property (or part) by such person or persons as the Board think appropriate in the circumstances of the case.]

[F191(9)If the whole or part of any property is disposed of by sale and—

(a)the requisite undertaking described in section 31 above is given with respect to the property (or part) by such person as the Board think appropriate in the circumstances of the case, or

(b)(where any of the property or part is an area of land within section 31(1)(d) above) the requisite undertakings described in that section are given with respect to the property (or part) by such person or persons as the Board think appropriate in the circumstances of the case,

the disposal is a chargeable event only with respect to the whole or part actually disposed of (if it is a chargeable event with respect to such whole or part apart from this subsection).]

(10)If—

(a)the Treasury are satisfied that there has been a failure to observe, as to one of the associated properties or part of it, an undertaking for the property’s maintenance, repair, preservation, access or keeping, or

(b)there is a disposal of one of the associated properties or part of it,

and it appears to the Treasury that the entity consisting of the associated properties has not been materially affected by the failure or disposal, they may direct that it shall be a chargeable event only with respect to the property or part as to which there has been a failure or disposal (if it is a chargeable event with respect to that property or part apart from this subsection.]

Textual Amendments

F184Finance Act 1985 Sch. 26 para. 4,in relation to events occurring after 18March 1985.

F185Finance Act 1986 Sch. 19, para. 10,in relation to transfers on or after 18March 1986.

F186S. 32A(5A) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 30(2)

F187S. 32A(6)(a)(b) and the words “unless”and “and”substituted for the words “unless”to “case; and”(31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(4)(9)

F188Words in s. 32A(7) inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 30(3)

F189S. 32A(8)(b) substituted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(5)(9)

F190S. 32A(8A) inserted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(6)(9)

F191S. 32A(9) substituted (31.7.1998 with effect in relation to the giving of any undertaking on or after 31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 7(7)(9)

Modifications etc. (not altering text)

C19 By Finance Act 1985 s. 95,the functions of the Treasury were transferred to the Commissioners of Inland Revenue (“the Board”).

33 Amount of charge under section 32.U.K.

(1)Tax chargeable in respect of any property under section 32 [F192or 32A] above by reference to a chargeable event shall be charged—

(a)on an amount equal to the value of the property at the time of the chargeable event; and

(b)at the following rate or rates—

(i)if the relevant person is alive, the rate or rates that would be applicable to that amount [F193in accordance with section 7(2) above] if it were the value transferred by a chargeable transfer made by the relevant person at that time;

(ii)if the relevant person is dead, the rate or rates that would have applied to that amount [F194in accordance with the appropriate provision of section 7 above] if it had been added to the value transferred on his death and had formed the highest part of that value.

[F195(2)For the purposes of subsection (1)(b)(ii) above the appropriate provision of section 7 above is—

(a)if the conditionally exempt transfer by the relevant person was made on death (but the property was not treated as forming part of his estate immediately before his death only by virtue of section 102(3) of the Finance Act 1986), subsection (1) of section 7; and

(b)in any other case, subsection (2) of section 7.

[F196(2ZA)In determining for the purposes of subsection (1)(b)(ii) the rate or rates that would have applied in accordance with subsection (1) of section 7, the effect of Schedule 1A (if it would have applied) is to be disregarded.]

(2A)The rate or rates of tax determined under subsection (1)(b)(i) above in respect of any chargeable event shall not be affected by the death of the relevant person after that event.]

(3)Where the chargeable event is a disposal on sale and the sale—

(a)was not intended to confer any gratuitous benefit on any person, and

(b)was either a transaction at arm’s length between persons not connected with each other or a transaction such as might be expected to be made at arm’s length between persons not connected with each other,

the value of the property at the time of the chargeable event shall be taken for the purposes of subsection (1)(a) above to be equal to the proceeds of the sale.

(4)Where by virtue of section 30(4) above the conditionally exempt transfer extended only to part of the property, the amount mentioned in subsection (1)(a) above shall be proportionately reduced.

(5)The relevant person in relation to a chargeable event in respect of any property is—

(a)if there has been only one conditionally exempt transfer of the property before the event, the person who made that transfer;

(b)if there have been two or more such transfers and the last was before, or only one of them was within, the period of thirty years ending with the event, the person who made the last of those transfers;

(c)if there have been two or more such transfers within that period, the person who made whichever of those transfers the Board may select.

(6)The conditionally exempt transfers to be taken into account for the purpose of subsection (5) above in relation to a chargeable event do not include transfers made before any previous chargeable event in respect of the same property or before any event which apart from [F197 section 32(4) or (4A)] above would have been such a chargeable event [F198or, where the property has been disposed of as mentioned in [F199section 32A(5) or (5A)] above, before any event which apart from [F199section 32A(5) or (5A)] would have been such a chargeable event]

(7)[F200Subject to subsection (8) below], where after a conditionally exempt transfer of any property there is a chargeable transfer the value transferred by which is wholly or partly attributable to that property, any tax charged on that value so far as attributable to that property shall be allowed as a credit—

(a)if the chargeable transfer is a chargeable event with respect to the property, against the tax chargeable in accordance with this section by reference to that event;

(b)if the chargeable transfer is not such a chargeable event, against the tax chargeable in accordance with this section by reference to the next chargeable event with respect to the property.

[F201(8)Where after a conditionally exempt transfer of any property there is a potentially exempt transfer the value transferred by which is wholly or partly attributable to that property and either—

(a)the potentially exempt transfer is a chargeable event with respect to the property, or

(b)after the potentially exempt transfer, but before the death of the person who is the transferor in relation to the potentially exempt transfer, a chargeable event occurs with respect to the property,

the tax charged in accordance with this section by reference to that chargeable event shall be allowed as a credit against any tax which may become chargeable, by reason of the potentially exempt transfer proving to be a chargeable transfer, on so much of the value transferred by that transfer as is attributable to the property; and subsection (7) above shall not apply with respect to any tax so becoming chargeable.]

Textual Amendments

F192Finance Act 1985 Sch. 26 para. 5,in relation to events occurring after 18March 1985.

F193Finance Act 1986 Sch. 19 para. 11(1)(a),with effect from 18March 1986.Originally

“under the second Table in Schedule 1 to this Act”.

F194Finance Act 1986 Sch. 19 para. 11(1)(b),with effect from 18March 1986.Originally

“under the appropriate Table”.

F195Finance Act 1986 Sch. 19 para. 11(2),with effect from 18March 1986.Originally

“(2) For the purposes of subsection (1)(b)(ii) above the appropriate Table is, if the conditionally exempt transfer by the relevant person was made on death, the first Table in Schedule 1 to this Act and, if not, the second Table”.

F196S. 33(2ZA) inserted (with effect in accordance with Sch. 33 para. 10(1) of the amending Act) by Finance Act 2012 (c. 14), Sch. 33 para. 4

F197Words in s. 33(6) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 31(a)

F198Finance Act 1985 Sch. 26 para. 6,in relation to events occurring after 18March 1985.

F199Words in s. 33(6) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 31(b)

F200Finance Act 1986 Sch. 19 para. 11(3),with effect from 18March 1986.

F201Finance Act 1986 Sch. 19 para. 11(4),in relation to chargeable events in respect of potentially exempt transfers made on or after 18March 1986.

34 Reinstatement of transferor’s cumulative total.U.K.

(1)Where tax has become chargeable under section 32 [F202or 32A] above by reference to a chargeable event in respect of any property (“the relevant event”) the rate or rates of tax applicable to any subsequent chargeable transfer made by the person who made the last conditionally exempt transfer of the property before the relevant event shall be determined as if the amount on which tax has become chargeable as aforesaid were value transferred by a chargeable transfer made by him at the time of the relevant event.

(2)Where the person who made the last conditionally exempt transfer of the property before the relevant event—

(a)is dead, and

(b)is for the purposes of section 33 above the relevant person in relation to a subsequent chargeable event,

section 33(1)(b)(ii) shall have effect as if the value transferred on his death were increased by the amount on which tax has become chargeable on the occasion of the relevant event.

(3)If—

(a)the person who made the last conditionally exempt transfer of the property before the relevant event is not the relevant person for the purposes of section 33 above in relation to that event, and

(b)at the time of that event or within the previous five years the property is or has been comprised in a settlement made not more than thirty years before that event, and

(c)a person who is the settlor in relation to the settlement has made a conditionally exempt transfer of the property within those thirty years,

subsections (1) and (2) above shall have effect with the substitution for references to the person who made the last conditionally exempt transfer before the relevant event of a reference to any such person as is mentioned in paragraph (c) above.

(4)The conditionally exempt transfers to be taken into account for the purposes of subsection (3)(c) above in relation to the relevant event do not include transfers made before any previous chargeable event in respect of the same property or before any event which apart from [F203section 32(4) or (4A)] above would have been such a chargeable event [F204or, where the property has been disposed of as mentioned in [F205section 32A(5) or (5A)] above, before any event which apart from [F205section 32A(5) or (5A)] would have been such a chargeable event].

Textual Amendments

F202Finance Act 1985 Sch. 26 para. 5, in relation to events occurring after 18 March 1985.

F203Words in s. 34(4) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 32(a)

F204Finance Act 1985 Sch. 26 para. 6, in relation to events occurring after 18 March 1985.

F205Words in s. 34(4) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 14 para. 32(b)

35 Conditional exemption on death before 7th April 1976.U.K.

(1)Schedule 5 to this Act shall have effect with respect to certain cases where, by virtue of sections 31 to 34 of the M7Finance Act 1975, the value of any property was left out of account in determining the value transferred on a death before 7th April 1976.

(2)Where there has been a transfer of value in relation to which the value of any property has been left out of account under the provisions of sections 31 to 34 of the Finance Act 1975 and, before any tax has become chargeable in respect of that property under those provisions, there is a conditionally exempt transfer of that property, then, on the occurrence of a chargeable event in respect of that property—

[F206(a)tax shall be chargeable under section 32 or 32A (as the case may be), or

(b)tax shall be chargeable under Schedule 5,]

(3)In [F207sections 33(7) and (8) above, references] to a conditionally exempt transfer of any property [F208include references] to a transfer of value in relation to which the value of any property has been left out of account under the provisions of sections 31 to 34 of the Finance Act 1975 and, in relation to such property, references to a chargeable event or to the tax chargeable in accordance with section 33 above by reference to a chargeable event include references to an event on the occurrence of which tax becomes chargeable under Schedule 5 to this Act, or to the tax so chargeable.

Textual Amendments

F206S. 35(2)(a)(b) substituted (with effect in accordance with s. 97(8) of the amending Act) by Finance Act 2016 (c. 24), s. 97(6)

F207Finance Act 1986 Sch. 19 para. 12,with effect from 18March 1986.Originally

“section 33(7) above, the reference”.

F208Finance Act 1986 Sch. 19 para. 12,with effect from 18March 1986.Originally

“includes a reference”.

Marginal Citations

[F20935A Variation of undertakings.U.K.

(1)An undertaking given under section 30, 32 or 32A above or paragraph 5 of Schedule 5 to this Act may be varied from time to time by agreement between the Board and the person bound by the undertaking.

(2)Where [F210the tribunal] is satisfied that—

(a)the Board have made a proposal for the variation of such an undertaking to the person bound by the undertaking,

(b)that person has failed to agree to the proposed variation within six months after the date on which the proposal was made, and

(c)it is just and reasonable, in all the circumstances, to require the proposed variation to be made,

[F211the tribunal may direct that the undertaking is to have effect from a specified date] as if the proposed variation had been agreed to by the person bound by the undertaking.

(3)The date specified by the [F212tribunal] must not be less than sixty days after the date of [F213the tribunal's direction].

(4)A direction under this section shall not take effect if, before the date specified by the [F214tribunal], a variation different from that to which the direction relates is agreed between the Board and the person bound by the undertaking.]

Textual Amendments

F209S. 35A and sidenote inserted (31.7.1998 with effect as mentioned in Sch. 25 para. 8(4) of the amending Act) by 1998 c. 36, s. 142, Sch. 25 para. 8(1)

Modifications etc. (not altering text)

C20S. 35A extended (31.7.1998) by 1992 c. 12, s. 258(8A) (as inserted (31.7.1998 with effect as mentioned in Sch. 25 para. 9(2) of the amending Act) by 1998 c. 36, s. 142, Sch. 25 para. 9(1))

S. 35A applied (with modifications) (31.7.1998) by 1998 c. 36, s. 142, Sch. 25 para. 10

CHAPTER IIIU.K. ALLOCATION OF EXEMPTIONS

36 Preliminary.U.K.

Where any one or more of sections 18, 23 to 27 and 30 above apply in relation to a transfer of value but the transfer is not wholly exempt—

(a)any question as to the extent to which it is exempt or, where it is exempt up to a limit, how an excess over the limit is to be attributed to the gifts concerned shall be determined in accordance with sections 37 to 40 below; and

(b)section 41 below shall have effect as respects the burden of tax.

37 Abatement of gifts.U.K.

(1)Where a gift would be abated owing to an insufficiency of assets and without regard to any tax chargeable, the gift shall be treated for the purposes of the following provisions of this Chapter as so abated.

(2)Where the value attributable, in accordance with section 38 below, to specific gifts exceeds the value transferred the gifts shall be treated as reduced to the extent necessary to reduce their value to that of the value transferred; and the reduction shall be made in the order in which, under the terms of the relevant disposition or any rule of law, it would fall to be made on a distribution of assets.

38 Attribution of value to specific gifts.U.K.

(1)Such part of the value transferred shall be attributable to specific gifts as corresponds to the value of the gifts; but if or to the extent that the gifts—

(a)are not gifts with respect to which the transfer is exempt or are outside the limit up to which the transfer is exempt, and

(b)do not bear their own tax,

the amount corresponding to the value of the gifts shall be taken to be the amount arrived at in accordance with subsections (3) to (5) below.

(2)Where any question arises as to which of two or more specific gifts are outside the limit up to which a transfer is exempt or as to the extent to which a specific gift is outside that limit—

(a)the excess shall be attributed to gifts not bearing their own tax before being attributed to gifts bearing their own tax, and

(b)subject to paragraph (a) above, the excess shall be attributed to gifts in proportion to their values.

(3)Where the only gifts with respect to which the transfer is or might be chargeable are specific gifts which do not bear their own tax, the amount referred to in subsection (1) above is the aggregate of—

(a)the sum of the value of those gifts; and

(b)the amount of tax which would be chargeable if the value transferred equalled that aggregate.

(4)Where the specific gifts not bearing their own tax are not the only gifts with respect to which the transfer is or might be chargeable, the amount referred to in subsection (1) above is such amount as, after deduction of tax at the assumed rate specified in subsection (5) below, would be equal to the sum of the value of those gifts.

(5)For the purposes of subsection (4) above—

(a)the assumed rate is the rate found by dividing the assumed amount of tax by that part of the value transferred with respect to which the transfer would be chargeable on the hypothesis that—

(i)the amount corresponding to the value of specific gifts not bearing their own tax is equal to the aggregate referred to in subsection (3) above, and

(ii)the parts of the value transferred attributable to specific gifts and to gifts of residue or shares in residue are determined accordingly; and

(b)the assumed amount of tax is the amount that would be charged on the value transferred on the hypothesis mentioned in paragraph (a) above.

(6)For the purposes of this section, any liability of the transferor which is not to be taken into account under section 5(5) above [F215or by virtue of section 103 of the Finance Act 1986] shall be treated as a specific gift [F215and to the extent that any liability of the transferor is abated under the said section 103, that liability shall be treated as a specific gift].

Textual Amendments

F215Finance Act 1986 Sch. 19 para. 13,with effect from 18March 1986.

39 Attribution of value to residuary gifts.U.K.

Such part only of the value transferred shall be attributed to gifts of residue or shares in residue as is not attributed under section 38 above to specific gifts.

[F21639A Operation of sections 38 and 39 in cases of business or agricultural relief.U.K.

(1)Where any part of the value transferred by a transfer of value is attributable to—

(a)the value of relevant business property, or

(b)the agricultural value of agricultural property,

then, for the purpose of attributing the value transferred (as reduced in accordance with section 104 or 116 below), to specific gifts and gifts of residue or shares of residue, sections 38 and 39 above shall have effect subject to the following provisions of this section.

(2)The value of any specific gifts of relevant business property or agricultural property shall be taken to be their value as reduced in accordance with section 104 or 116 below.

(3)The value of any specific gifts not falling within subsection (2) above shall be taken to be the appropriate fraction of their value.

(4)In subsection (3) above “the appropriate fraction” means a fraction of which—

(a)the numerator is the difference between the value transferred and the value, reduced as mentioned in subsection (2) above, of any gifts falling within that subsection, and

(b)the denominator is the difference between the unreduced value transferred and the value, before the reduction mentioned in subsection (2) above, of any gifts falling within that subsection;

and in paragraph (b) above “the unreduced value transferred” means the amount which would be the value transferred by the transfer but for the reduction required by sections 104 and 116 below.

(5)If or to the extent that specific gifts fall within paragraphs (a) and (b) of subsection (1) of section 38 above, the amount corresponding to the value of the gifts shall be arrived at in accordance with subsections (3) to (5) of that section by reference to their value reduced as mentioned in subsection (2) or, as the case may be, subsection (3) of this section.

(6)For the purposes of this section the value of a specific gift of relevant business property or agricultural property does not include the value of any other gift payable out of that property; and that other gift shall not itself be treated as a specific gift of relevant business property or agricultural property.

(7)In this section—

Textual Amendments

F216Finance Act 1986 s. 105,in relation to transfers of value made after 17March 1986.

40 Gifts made separately out of different funds.U.K.

Where gifts taking effect on a transfer of value take effect separately out of different funds the preceding provisions of this Chapter shall be applied separately to the gifts taking effect out of each of those funds, with the necessary adjustments of the values and amounts referred to in those provisions.

41 Burden of tax.U.K.

Notwithstanding the terms of any disposition—

(a)none of the tax on the value transferred shall fall on any specific gift if or to the extent that the transfer is exempt with respect to the gift, and

(b)none of the tax attributable to the value of the property comprised in residue shall fall on any gift of a share of residue if or to the extent that the transfer is exempt with respect to the gift.

42 Supplementary.U.K.

(1)In this Chapter—

(2)For the purposes of this Chapter a gift bears its own tax if the tax attributable to it falls on the person who becomes entitled to the property given or (as the case may be) is payable out of property applicable for the purposes for which the property given becomes applicable.

(3)Where—

(a)the whole or part of the value transferred by a transfer of value is attributable to property which is the subject of two or more gifts, and

(b)the aggregate of the values of the property given by each of those gifts is less than the value transferred or, as the case may be, that part of it,

then for the purposes of this Chapter (and notwithstanding the definition of a gift in subsection (1) above) the value of each gift shall be taken to be the relevant proportion of the value transferred or, as the case may be, that part of it; and the relevant proportion in relation to any gift is the proportion which the value of the property given by it bears to the said aggregate.

(4)Where on the death of a person legal rights under the law of Scotland are claimed by a person entitled to claim them, they shall be treated for the purposes of this Chapter as a specific gift which bears its own tax; and in determining the value of such legal rights, any tax payable on the estate of the deceased shall be left out of account.

PART IIIU.K. SETTLED PROPERTY

CHAPTER IU.K. PRELIMINARY

43 Settlement and related expressions.U.K.

(1)The following provisions of this section apply for determining what is to be taken for the purposes of this Act to be a settlement, and what property is, accordingly, referred to as property comprised in a settlement or as settled property.

(2)Settlement” means any disposition or dispositions of property, whether effected by instrument, by parol or by operation of law, or partly in one way and partly in another, whereby the property is for the time being—

(a)held in trust for persons in succession or for any person subject to a contingency, or

(b)held by trustees on trust to accumulate the whole or part of any income of the property or with power to make payments out of that income at the discretion of the trustees or some other person, with or without power to accumulate surplus income, or

(c)charged or burdened (otherwise than for full consideration in money or money’s worth paid for his own use or benefit to the person making the disposition) with the payment of any annuity or other periodical payment payable for a life or any other limited or terminable period,

or would be so held or charged or burdened if the disposition or dispositions were regulated by the law of any part of the United Kingdom; or whereby, under the law of any other country, the administration of the property is for the time being governed by provisions equivalent in effect to those which would apply if the property were so held, charged or burdened.

(3)A lease of property which is for life or lives, or for a period ascertainable only by reference to a death, or which is terminable on, or at a date ascertainable only by reference to, a death, shall be treated as a settlement and the property as settled property, unless the lease was granted for full consideration in money or money’s worth; and where a lease not granted as a lease at a rack rent is at any time to become a lease at an increased rent it shall be treated as terminable at that time.

(4)In relation to Scotland “settlement” also includes—

(a)an entail,

(b)any deed by virtue of which an annuity is charged on, or on the rents of, any property (the property being treated as the property comprised in the settlement), and

(c)any deed creating or reserving a proper liferent of any property whether heritable or moveable (the property from time to time subject to the proper liferent being treated as the property comprised in the settlement);

and for the purposes of this subsection “deed” includes any disposition, arrangement, contract, resolution, instrument or writing.

(5)In the application of this Act to Northern Ireland this section shall have effect as if references to property held in trust for persons included references to property standing limited to persons and as if the lease referred to in subsection (3) did not include a lease in perpetuity within the meaning of section 1 of the M8Renewable Leasehold Conversion Act 1849 or a lease to which section 37 of that Act applies.

Marginal Citations

44 Settlor.U.K.

(1)In this Act “settlor”, in relation to a settlement, includes any person by whom the settlement was made directly or indirectly, and in particular (but without prejudice to the generality of the preceding words) includes any person who has provided funds directly or indirectly for the purpose of or in connection with the settlement or has made with any other person a reciprocal arrangement for that other person to make the settlement.

(2)Where more than one person is a settlor in relation to a settlement and the circumstances so require, this Part of this Act (except section 48(4) to (6)) shall have effect in relation to it as if the settled property were comprised in separate settlements.

45 Trustee.U.K.

In this Act “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this section, means any person in whom the settled property or its management is for the time being vested.

46 Interest in possession: Scotland.U.K.

In the application of this Act to Scotland, any reference to an interest in possession in settled property is a reference to an interest of any kind under a settlement by virtue of which the person in right of that interest is entitled to the enjoyment of the property or would be so entitled if the property were capable of enjoyment, including an interest of an assignee under an assignation of an interest of any kind (other than a reversionary interest) in property subject to a proper liferent; and the person in right of such an interest at any time shall be deemed to be entitled to a corresponding interest in the whole or any part of the property comprised in the settlement.

[F21746AContract of life insurance entered into before 22nd March 2006 which on that day is settled property in which interest in possession subsistsU.K.

(1)Subsections (2) and (4) below apply where—

(a)a settlement commenced before 22nd March 2006,

(b)a contract of life insurance was entered into before that day,

(c)a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day,

(d)immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that—

(i)were comprised in the settlement, and

(ii)were settled property in which a transitionally-protected interest (whether or not the same such interest throughout that period) subsisted,

(e)rights under the contract become, by reference to payment of the premium or as a result of the variation,—

(i)comprised in the settlement, and

(ii)part of the settled property in which the then-current transitionally-protected interest subsists, and

(f)any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it is a variation that—

(i)increased the benefits secured by the contract, or

(ii)extended the term of the insurance provided by the contract,

was an allowed variation.

(2)For the purposes of the provisions mentioned in subsection (3) below—

(a)the rights mentioned in subsection (1)(e) above shall be taken to have become comprised in the settlement, and

(b)the person beneficially entitled to the then-current transitionally-protected interest shall be taken to have become beneficially entitled to his interest in possession so far as it subsists in those rights,

before 22nd March 2006.

(3)Those provisions are—

(4)If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer.

(5)In this section—

Textual Amendments

46BContract of life insurance entered into before 22nd March 2006 which immediately before that day is property to which section 71 appliesU.K.

(1)Subsections (2) and (5) below apply where—

(a)a settlement commenced before 22nd March 2006,

(b)a contract of life insurance was entered into before that day,

(c)a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day,

(d)immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that—

(i)were comprised in the settlement, and

(ii)were settled property to which section 71 below applied,

(e)rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and

(f)any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that—

(i)increased the benefits secured by the contract, or

(ii)extended the term of the insurance provided by the contract,

was an allowed variation.

(2)If the rights mentioned in subsection (1)(e) above would, but for subsection (1A) of section 71 below, become property to which that section applies, those rights shall become settled property to which that section applies when they become comprised in the settlement.

(3)Subsection (5) below also applies where—

(a)a settlement commenced before 22nd March 2006,

(b)a contract of life insurance was entered into before that day,

(c)a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day when there are rights under the contract—

(i)that are comprised in the settlement and are settled property to which section 71A or 71D below applies,

(ii)that immediately before that day were settled property to which section 71 below applied, and

(iii)that on or after that day, but before the particular time, became property to which section 71A or 71D below applies in circumstances falling within subsection (4) below,

(d)rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and

(e)any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that—

(i)increased the benefits secured by the contract, or

(ii)extended the term of the insurance provided by the contract,

was an allowed variation.

(4)The circumstances referred to in subsection (3)(c)(iii) above are—

(a)in the case of property to which section 71D below applies, that the property on becoming property to which section 71D below applies ceased to be property to which section 71 below applied without ceasing to be settled property;

(b)in the case of property to which section 71A below applies—

(i)that the property on becoming property to which section 71A below applies ceased, by the operation of section 71(1B) below, to be property to which section 71 below applied, or

(ii)that the property, having become property to which section 71D below applied in circumstances falling within paragraph (a) above, on becoming property to which 71A below applies ceased, by the operation of section 71D(5)(a) below, to be property to which section 71D below applied.

(5)If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer.

(6)In this section “allowed variation”, in relation to a contract, means a variation that takes place by operation of, or as a result of exercise of rights conferred by, provisions forming part of the contract immediately before 22nd March 2006.]

Textual Amendments

47 Reversionary interest.U.K.

In this Act “reversionary interest” means a future interest under a settlement, whether it is vested or contingent (including an interest expectant on the termination of an interest in possession which, by virtue of section 50 below, is treated as subsisting in part of any property) and in relation to Scotland includes an interest in the fee of property subject to a proper liferent.

[F21847A Settlement powerU.K.

In this Act “settlement power” means any power over, or exercisable (whether directly or indirectly) in relation to, settled property or a settlement.]

Textual Amendments

F218S. 47A inserted (24.7.2002 with effect as mentioned in s.119(6)(7) of the amending Act) by 2002 c. 23, s. 119(2)(6)(7)

48 Excluded property.U.K.

(1)A reversionary interest is excluded property unless—

(a)it has at any time been acquired (whether by the person entitled to it or by a person previously entitled to it) for a consideration in money or money’s worth, or

(b)it is one to which either the settlor or his spouse [F219or civil partner] is or has been beneficially entitled, or

(c)it is the interest expectant on the determination of a lease treated as a settlement by virtue of section 43(3) above [F220or,

(d)in a case where paragraphs (a), (b) and (d) of section 74A(1) are satisfied—

(i)it is a reversionary interest, in the relevant settled property, to which the individual is beneficially entitled, and

(ii)the individual has or is able to acquire (directly or indirectly) another interest in that relevant settled property.

Terms used in paragraph (d) have the same meaning as in section 74A].

(2)In relation to a reversionary interest under a settlement made before 16th April 1976, subsection (1) above shall have effect with the omission of paragraph (b); and, if the person entitled to a reversionary interest under a settlement made on or after 16th April 1976 acquired the interest before 10th March 1981, that subsection shall have effect with the omission of the words “or has been” in paragraph (b).

(3)Where property comprised in a settlement is situated outside the United Kingdom—

(a)the property (but not a reversionary interest in the property) is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made, and

(b)section 6(1) above applies to a reversionary interest in the property but does not otherwise apply in relation to the property [F221;

but this subsection is subject to [F222subsections (3B) [F223to (3E)]] below] [F224and to Schedule A1].

[F225(3A)Where property comprised in a settlement is a holding in an authorised unit trust or a share in an open-ended investment company—

(a)the property (but not a reversionary interest in the property) is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made, and

(b)section 6(1A) above applies to a reversionary interest in the property but does not otherwise apply in relation to the property [F226;

but this subsection is subject to [F227subsections (3B) and (3E)] below]] [F224and to Schedule A1].

[F228(3B)Property is not excluded property by virtue of subsection (3) or (3A) above if—

(a)a person is, or has been, beneficially entitled to an interest in possession in the property at any time,

(b)the person is, or was, at that time an individual domiciled in the United Kingdom, and

(c)the entitlement arose directly or indirectly as a result of a disposition made on or after 5th December 2005 for a consideration in money or money's worth.

(3C)For the purposes of subsection (3B) above—

(a)it is immaterial whether the consideration was given by the person or by anyone else, and

(b)the cases in which an entitlement arose indirectly as a result of a disposition include any case where the entitlement arose under a will or the law relating to intestacy.]

[F229(3D)Where paragraphs (a) to (d) of section 74A(1) are satisfied, subsection (3)(a) above does not apply at the time they are first satisfied or any later time to make the relevant settled property (within the meaning of section 74A) excluded property.]

[F230(3E)In a case where the settlor of property comprised in a settlement is not domiciled in the United Kingdom at the time the settlement is made, the property is not excluded property by virtue of subsection (3) or (3A) above at any time in a tax year if the settlor was a formerly domiciled resident for that tax year.]

(4)Where securities issued by the Treasury subject to a condition of the kind mentioned in subsection (2) of section 6 above are comprised in a settlement, that subsection shall not apply to them; but the securities are excluded property if—

(a)a person [F231of a description specified in the condition in question] is entitled to a qualifying interest in possession in them, or

(b)no qualifying interest in possession subsists in them but it is shown that all known persons for whose benefit the settled property or income from it has been or might be applied, or who are or might become beneficially entitled to an interest in possession in it, are persons [F231of a description specified in the condition in question].

[F232This subsection is subject to Schedule A1.]

(5)Where—

(a)property ceased to be comprised in one settlement before 10th December 1981 and after 19th April 1978 and, by the same disposition, became comprised in another settlement, or

(b)property ceased to be comprised in one settlement after 9th December 1981 and became comprised in another without any person having in the meantime become beneficially entitled to the property (and not merely to an interest in possession in the property),

subsection (4)(b) above shall, in its application to the second settlement, be construed as requiring the matters there stated to be shown both in relation to the property comprised in that settlement and in relation to the property that was comprised in the first settlement.

(6)Subsection (5) above shall not apply where a reversionary interest in the property expectant on the termination of a qualifying interest in possession subsisting under the first settlement was settled on the trusts of the second settlement before 10th December 1981.

(7)In this section “qualifying interest in possession” has the same meaning as in Chapter III of this Part of this Act.

Textual Amendments

F220S. 48(1)(d) and words inserted (20.6.2012 and with effect in accordance with s. 210(5) of the amending Act) by Finance Act 2012 (c. 14), s. 210(2)(a)

F221Words in s. 48(3) inserted (5.12.2005) by Finance Act 2006 (c. 25), s. 157(2)(6) (with s. 157(5))

F222Words in s. 48(3) substituted (20.6.2012 and with effect in accordance with s. 210(5) of the amending Act) by Finance Act 2012 (c. 14), s. 210(2)(b)

F223Words in s. 48(3)(b) substituted (with effect in accordance with s. 30(9)-(12) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 30(4)(a)

F224Words in s. 48(3)(3A) inserted (with effect in accordance with Sch. 10 para. 9 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 10 para. 4(a)

F225S. 48(3A) inserted (with effect as mentioned in s. 186(8) of the amending Act) by Finance Act 2003 (c. 14), s. 186(3)

F226Words in s. 48(3A) inserted (5.12.2005) by Finance Act 2006 (c. 25), s. 157(3)(6) (with s. 157(5))

F227Words in s. 48(3A)(b) substituted (with effect in accordance with s. 30(9)-(12) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 30(4)(b)

F228S. 48(3B)(3C) inserted (5.12.2005) by Finance Act 2006 (c. 25), s. 157(4)(6) (with s. 157(5))

F229S. 48(3D) inserted (20.6.2012 and with effect in accordance with s. 210(5) of the amending Act) by Finance Act 2012 (c. 14), s. 210(2)(c)

F230S. 48(3E) inserted (with effect in accordance with s. 30(9)-(12) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 30(4)(c)

F231Words in s. 48(4)(a)(b) substituted (29.4.1996 with effect as mentioned in s. 154(9)(a)(b) of the amending Act) by 1996 c. 8, s. 154(7), Sch. 28 para. 8 (with s. 154(5))

F232Words in s. 48(4) inserted (with effect in accordance with Sch. 10 para. 9 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 10 para. 4(b)

CHAPTER IIU.K.[F233 INTERESTS IN POSSESSION, REVERSIONARY INTERESTS AND SETTLEMENT POWERS]

Textual Amendments

F233Words in the title of Chapter II substituted (24.7.2002 with effect in relation to transfers of value on or after 17.4.2002) by virtue of 2002 c. 23, s. 119(5)(6)

49 Treatment of interests in possession.U.K.

(1)A person beneficially entitled to an interest in possession in settled property shall be treated for the purposes of this Act as beneficially entitled to the property in which the interest subsists.

[F234(1A)Where the interest in possession mentioned in subsection (1) above is one to which the person becomes beneficially entitled on or after 22nd March 2006, subsection (1) above applies in relation to that interest only if, and for so long as, it is—

(a)an immediate post-death interest,

(b)a disabled person's interest, or

(c)a transitional serial interest,

[F235or falls within section 5(1B) above.]

(1B)Where the interest in possession mentioned in subsection (1) above is one to which the person became beneficially entitled before 22nd March, subsection (1) above does not apply in relation to that interest at any time when section 71A below applies to the property in which the interest subsists.]

(2)Where a person becomes entitled to an interest in possession in settled property as a result of a disposition for a consideration in money or money’s worth, any question whether and to what extent the giving of the consideration is a transfer of value or chargeable transfer shall be determined without regard to subsection (1) above.

(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F236

Textual Amendments

F235Words in s. 49(1A) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(4)(a)

F236Finance Act 1986 Sch. 19 para. 14,with effect from 18March 1986and repealed by Finance Act (No.2) 1987 s. 96(4)and Sch. 9 Part III,in relation to transfers of value made on or after 17March 1987.

[F23749AImmediate post-death interestU.K.

(1)Where a person (“L”) is beneficially entitled to an interest in possession in settled property, for the purposes of this Chapter that interest is an “immediate post-death interest” only if the following conditions are satisfied.

(2)Condition 1 is that the settlement was effected by will or under the law relating to intestacy.

(3)Condition 2 is that L became beneficially entitled to the interest in possession on the death of the testator or intestate.

(4)Condition 3 is that—

(a)section 71A below does not apply to the property in which the interest subsists, and

(b)the interest is not a disabled person's interest.

(5)Condition 4 is that Condition 3 has been satisfied at all times since L became beneficially entitled to the interest in possession.

Textual Amendments

49BTransitional serial interestsU.K.

Where a person is beneficially entitled to an interest in possession in settled property, for the purposes of this Chapter that interest is a “transitional serial interest” only—

(a)if section 49C or 49D below so provides, or

(b)if, and to the extent that, section 49E below so provides.

Textual Amendments

49CTransitional serial interest: interest to which person becomes entitled during period 22nd March 2006 to 5th [F238October] 2008U.K.

(1)Where a person (“B”) is beneficially entitled to an interest in possession in settled property (“the current interest”), that interest is a transitional serial interest for the purposes of this Chapter if the following conditions are met.

(2)Condition 1 is that—

(a)the settlement commenced before 22nd March 2006, and

(b)immediately before 22nd March 2006, the property then comprised in the settlement was property in which B, or some other person, was beneficially entitled to an interest in possession (“the prior interest”).

(3)Condition 2 is that the prior interest came to an end at a time on or after 22nd March 2006 but before 6th [F239October] 2008.

(4)Condition 3 is that B became beneficially entitled to the current interest at that time.

(5)Condition 4 is that—

(a)section 71A below does not apply to the property in which the interest subsists, and

(b)the interest is not a disabled person's interest.

Textual Amendments

F238S. 49C: word in heading substituted (retrospective to 6.4.2008) by Finance Act 2008 (c. 9), s. 141(1)(a)(2)

F239Word in s. 49C(3) substituted (retrospective to 6.4.2008) by Finance Act 2008 (c. 9), s. 141(1)(a)(2)

49DTransitional serial interest: interest to which person becomes entitled on death of spouse or civil partner on or after 6th [F240October] 2008U.K.

(1)Where a person (“E”) is beneficially entitled to an interest in possession in settled property (“the successor interest”), that interest is a transitional serial interest for the purposes of this Chapter if the following conditions are met.

(2)Condition 1 is that—

(a)the settlement commenced before 22nd March 2006, and

(b)immediately before 22nd March 2006, the property then comprised in the settlement was property in which a person other than E was beneficially entitled to an interest in possession (“the previous interest”).

(3)Condition 2 is that the previous interest came to an end on or after 6th [F241October] 2008 on the death of that other person (“F”).

(4)Condition 3 is that, immediately before F died, F was the spouse or civil partner of E.

(5)Condition 4 is that E became beneficially entitled to the successor interest on F's death.

(6)Condition 5 is that—

(a)section 71A below does not apply to the property in which the successor interest subsists, and

(b)the successor interest is not a disabled person's interest.

Textual Amendments

F240S. 49D: word in heading substituted (retrospective to 6.4.2008) by Finance Act 2008 (c. 9), s. 141(1)(b)(2)

F241Word in s. 49D(3) substituted (retrospective to 6.4.2008) by Finance Act 2008 (c. 9), s. 141(1)(b)(2)

49ETransitional serial interest: contracts of life insuranceU.K.

(1)Where—

(a)a person (“C”) is beneficially entitled to an interest in possession in settled property (“the present interest”), and

(b)on C's becoming beneficially entitled to the present interest, the settled property consisted of, or included, rights under a contract of life insurance entered into before 22nd March 2006,

the present interest so far as subsisting in rights under the contract, or in property comprised in the settlement that directly or indirectly represents rights under the contract, is a “transitional serial interest” for the purposes of this Chapter if the following conditions are met.

(2)Condition 1 is that—

(a)the settlement commenced before 22nd March 2006, and

(b)immediately before 22nd March 2006—

(i)the property then comprised in the settlement consisted of, or included, rights under the contract, and

(ii)those rights were property in which C, or some other person, was beneficially entitled to an interest in possession (“the earlier interest”).

(3)Condition 2 is that—

(a)the earlier interest came to an end at a time on or after 6th [F242October] 2008 (“the earlier-interest end-time”) on the death of the person beneficially entitled to it and C became beneficially entitled to the present interest—

(i)at the earlier-interest end-time, or

(ii)on the coming to an end, on the death of the person beneficially entitled to it, of an interest in possession to which that person became beneficially entitled at the earlier-interest end-time, or

(iii)on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession to the first of which a person became beneficially entitled at the earlier-interest end-time and each of which ended on the death of the person beneficially entitled to it, or

(b)C became beneficially entitled to the present interest—

(i)on the coming to an end, on the death of the person entitled to it, of an interest in possession that is a transitional serial interest under section 49C above, or

(ii)on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession the first of which was a transitional serial interest under section 49C above and each of which ended on the death of the person beneficially entitled to it.

(4)Condition 3 is that rights under the contract were comprised in the settlement throughout the period beginning with 22nd March 2006 and ending with C's becoming beneficially entitled to the present interest.

(5)Condition 4 is that—

(a)section 71A below does not apply to the property in which the present interest subsists, and

(b)the present interest is not a disabled person's interest.]

Textual Amendments

F242Word in s. 49E(3) substituted (retrospective to 6.4.2008) by Finance Act 2008 (c. 9), s. 141(1)(c)(2)

50 Interests in part, etc.U.K.

(1)Where the person referred to in section 49(1) above is entitled to part only of the income (if any) of the property, the interest shall be taken to subsist in such part only of the property as bears to the whole the same proportion as the part of the income to which he is entitled bears to the whole of the income.

(2)Where the part of the income of any property to which a person is entitled is a specified amount (or the whole less a specified amount) in any period, his interest in the property shall be taken, subject to subsection (3) below, to subsist in such part (or in the whole less such part) of the property as produces that amount in that period.

(3)The Treasury may from time to time by order prescribe a higher and a lower rate for the purposes of this section; and where tax is chargeable in accordance with subsection (2) above by reference to the value of the part of a property which produces a specified amount or by reference to the value of the remainder (but not where chargeable transfers are made simultaneously and tax is chargeable by reference to the value of that part as well as by reference to the value of the remainder) the value of the part producing that specified amount—

(a)shall, if tax is chargeable by reference to the value of that part, be taken to be not less than it would be if the property produced income at the higher rate so prescribed, and

(b)shall, if tax is chargeable by reference to the value of the remainder, be taken to be not more than it would be if the property produced income at the lower rate so prescribed;

but the value to be taken by virtue of paragraph (a) above as the value of part of a property shall not exceed the value of the whole of the property.

(4)The power to make orders under subsection (3) above shall be exercisable by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.

(5)Where the person referred to in section 49(1) above is not entitled to any income of the property but is entitled, jointly or in common with one or more other persons, to the use and enjoyment of the property, his interest shall be taken to subsist in such part of the property as corresponds to the proportion which the annual value of his interest bears to the aggregate of the annual values of his interest and that or those of the other or others.

(6)Where, under section 43(3) above, a lease of property is to be treated as a settlement, the lessee’s interest in the property shall be taken to subsist in the whole of the property less such part of it as corresponds to the proportion which the value of the lessor’s interest (as determined under Part VI of this Act) bears to the value of the property.

Modifications etc. (not altering text)

C21 See S.I. 1980/1000 (in Part III Statutory Regulations etc.)for the current rates applicable.

51 Disposal of interest in possession.U.K.

(1)Where a person beneficially entitled to an interest in possession in settled property disposes of his interest the disposal—

(a)is not a transfer of value, but

(b)shall be treated for the purposes of this Chapter as the coming to an end of his interest;

and tax shall be charged accordingly under section 52 below.

[F243(1A)Where the interest disposed of is one to which the person became beneficially entitled on or after 22nd March 2006, subsection (1) above applies in relation to the disposal only if the interest is—

(a)an immediate post-death interest,

(b)a disabled person's interest within section 89B(1)(c) or (d) below, or

(c)a transitional serial interest,

[F244or falls within section 5(1B) above.]

(1B)Where the interest disposed of is one to which the person became beneficially entitled before 22nd March 2006, subsection (1) above does not apply in relation to the disposal if, immediately before the disposal, section 71A or 71D below applies to the property in which the interest subsists.]

(2)Where a disposition satisfying the conditions of section 11 above is a disposal of an interest in possession in settled property, the interest shall not by virtue of subsection (1) above be treated as coming to an end.

(3)References in this section to any property or to an interest in any property include references to part of any property or interest.

Textual Amendments

F244Words in s. 51(1A) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(4)(b)

52 Charge on termination of interest in possession.U.K.

(1)Where at any time during the life of a person beneficially entitled to an interest in possession in settled property his interest comes to an end, tax shall be charged, subject to section 53 below, as if at that time he had made a transfer of value and the value transferred had been equal to the value of the property in which his interest subsisted.

(2)If the interest comes to an end by being disposed of by the person beneficially entitled to it and the disposal is for a consideration in money or money’s worth, tax shall be chargeable under this section as if the value of the property in which the interest subsisted were reduced by the amount of the consideration; but in determining that amount the value of a reversionary interest in the property or of any interest in other property comprised in the same settlement shall be left out of account.

[F245(2A)Where the interest mentioned in subsection (1) or (2) above is one to which the person became beneficially entitled on or after 22nd March 2006, that subsection applies in relation to the coming to an end of the interest only if the interest is—

(a)an immediate post-death interest,

(b)a disabled person's interest, or

(c)a transitional serial interest,

[F246or falls within section 5(1B) above.]]

(3)Where a transaction is made between the trustees of the settlement and a person who is, or is connected with,—

(a)the person beneficially entitled to an interest in the property, or

(b)a person beneficially entitled to any other interest in that property or to any interest in any other property comprised in the settlement, or

(c)a person for whose benefit any of the settled property may be applied,

and, as a result of the transaction, the value of the first-mentioned property is less than it would be but for the transaction, a corresponding part of the interest shall be deemed for the purposes of this section to come to an end, unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value.

[F247(3A)Where the interest mentioned in paragraph (a) of subsection (3) above is one to which the person mentioned in that paragraph became beneficially entitled on or after 22nd March 2006, that subsection applies in relation to the transaction only if the interest is—

(a)an immediate post-death interest,

(b)a disabled person's interest, or

(c)a transitional serial interest,

[F246or falls within section 5(1B) above.]]

(4)References in this section or section 53 below to any property or to an interest in any property include references to part of any property or interest; and—

(a)the tax chargeable under this section on the coming to an end of part of an interest shall be charged as if the value of the property (or part) in which the interest subsisted were a corresponding part of the whole; and

(b)if the value of the property (or part) to which or to an interest in which a person becomes entitled as mentioned in subsection (2) of section 53 below is less than the value on which tax would be chargeable apart from that subsection, tax shall be chargeable on a value equal to the difference.

Textual Amendments

F246Words in s. 52(2A)(3A) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(4)(c)

53 Exceptions from charge under section 52.U.K.

(1)Tax shall not be chargeable under section 52 above if the settled property is excluded property.

[F248(1A)Tax shall not be chargeable under section 52 above if—

(a)the person whose interest comes to an end became beneficially entitled to the interest before 22nd March 2006,

(b)the interest comes to an end on or after that day, and

(c)immediately before the interest comes to an end, section 71A or 71D below applies to the property in which the interest subsists.]

(2)Tax shall not be chargeable under section 52 above (except in the case mentioned in subsection (4)(b) of that section) if the person whose interest in the property comes to an end becomes on the same occasion beneficially entitled to the property or to another interest in possession in the property.

[F249[F250(2A)Subsection (2) above applies by virtue of the person becoming beneficially entitled on or after 12 March 2008 to another interest in possession in the property only if that other interest is—

(a)a disabled person's interest, or

(b)a transitional serial interest;

and that is the case irrespective of whether the person's beneficial entitlement to the interest in possession in the property which comes to an end is one which began before, or on or after, 22 March 2006.]]

(3)Tax shall not be chargeable under section 52 above if the interest comes to an end during the settlor’s life and on the same occasion the property in which the interest subsisted reverts to the settlor.

(4)Tax shall not be chargeable under section 52 above if on the occasion when the interest comes to an end—

(a)the settlor’s spouse [F251or civil partner], or

(b)where the settlor has died less than two years earlier, the settlor’s widow or widower [F252or surviving civil partner],

becomes beneficially entitled to the settled property and is domiciled in the United Kingdom.

(5)Subsections (3) and (4) above shall not apply in any case where—

(a)the settlor or the spouse [F253or civil partner] (or in a case within subsection (4)(b), the widow or widower [F254or surviving civil partner]) of the settlor had acquired a reversionary interest in the property for a consideration in money or money’s worth, or

(b)their application depends upon a reversionary interest having been transferred into a settlement on or after 10th March 1981.

(6)For the purposes of subsection (5) above a person shall be treated as acquiring an interest for a consideration in money or money’s worth if he becomes entitled to it as a result of transactions which include a disposition for such consideration (whether to him or another) of that interest or of other property.

(7)Where the acquisition of the interest was before 12th April 1978, subsection (5)(a) above shall have effect, so far as it relates to subsection (3) above, with the omission of the reference to the spouse [F255or civil partner] of the settlor.

(8)Subsection (6) above shall not apply where the person concerned became entitled to the interest before 12th April 1978.

54 Exceptions from charge on deathU.K.

(1)Where a person is entitled to an interest in possession in settled property which on his death, but during the settlor’s life, reverts to the settlor, the value of the settled property shall be left out of account in determining for the purposes of this Act the value of the deceased’s estate immediately before his death.

(2)Where on the death of a person entitled to an interest in possession in settled property—

(a)the settlor’s spouse [F256or civil partner], or

(b)if the settlor has died less than two years earlier, the settlor’s widow or widower [F257or surviving civil partner],

becomes beneficially entitled to the settled property and is domiciled in the United Kingdom, the value of the settled property shall be left out of account in determining for the purposes of this Act the value of the deceased’s estate immediately before his death.

[F258(2A)Where a person becomes beneficially entitled on or after 22nd March 2006 to an interest in possession in settled property, subsections (1) and (2) above apply in relation to the interest only if it is—

(a)a disabled person's interest, or

(b)a transitional serial interest.

(2B)Where—

(a)a person (“B”) becomes beneficially entitled on or after 22nd March 2006 to an interest in possession in settled property,

(b)B dies,

(c)the interest in possession, throughout the period beginning with when B becomes beneficially entitled to it and ending with B's death, is an immediate post-death interest,

(d)the settlor died before B's death but less than two years earlier, and

(e)on B's death, the settlor's widow or widower, or surviving civil partner, becomes beneficially entitled to the settled property and is domiciled in the United Kingdom,

the value of the settled property shall be left out of account in determining for the purposes of this Act the value of B's estate immediately before his death.]

(3)Subsections (5) and (6) of section 53 above shall apply in relation to subsections [F259(1), (2) and (2B)] above as they apply in relation to section 53(3) and (4) [F260, but as if the reference in section 53(5)(a) above to section 53(4)(b) above were to subsection (2)(b) or (2B) above.] .

(4)For the purposes of this section, where it cannot be known which of two or more persons who have died survived the other or others they shall be assumed to have died at the same instant.

[F26154A Special rate of charge where settled property affected by potentially exempt transfer.U.K.

(1)If the circumstances fall within subsection (2) below, this section applies to any chargeable transfer made—

(a)under section 52 above, on the coming to an end of an interest in possession in settled property during the life of the person beneficially entitled to it, or

(b)on the death of a person beneficially entitled to an interest in possession in settled property;

and in the following provisions of this section the interest in possession mentioned in paragraph (a) or paragraph (b) above is referred to as “the relevant interest”.

[F262(1A)Where a person becomes beneficially entitled on or after 22nd March 2006 to an interest in possession in settled property, subsection (1)(b) above applies in relation to the person's death only if the interest is—

(a)a disabled person's interest, or

(b)a transitional serial interest.]

(2)The circumstances referred to in subsection (1) above are—

(a)that the whole or part of the value transferred by the transfer is attributable to property in which the relevant interest subsisted and which became settled property in which there subsisted an interest in possession (whether the relevant interest or any previous interest) on the making by the settlor of a potentially exempt transfer at any time on or after 17th March 1987 and within the period of seven years ending with the date of the chargeable transfer; and

(b)that the settlor is alive at the time when the relevant interest comes to an end; and

(c)that, on the coming to an end of the relevant interest, any of the property in which that interest subsisted becomes settled property in which no qualifying interest in possession (as defined in section 59 below) subsists F263. . . ; and

(d)that, within six months of the coming to an end of the relevant interest, any of the property in which that interest subsisted has neither—

(i)become settled property in which a qualifying interest in possession subsists F263. . . , nor

(ii)become property to which an individual is beneficially entitled.

(3)In the following provisions of this section “the special rate property”, in relation to a chargeable transfer to which this section applies, means the property in which the relevant interest subsisted or, in a case where—

(a)any part of that property does not fall within subsection (2)(a) above, or

(b)any part of that property does not become settled property of the kind mentioned in subsection (2)(c) above,

so much of that property as appears to the Board or, on appeal, to the [F264tribunal] to be just and reasonable.

(4)Where this section applies to a chargeable transfer (in this section referred to as “the relevant transfer”), the tax chargeable on the value transferred by the transfer shall be whichever is the greater of the tax that would have been chargeable apart from this section and the tax determined in accordance with subsection (5) below.

(5)The tax determined in accordance with this subsection is the aggregate of—

(a)the tax that would be chargeable on a chargeable transfer of the description specified in subsection (6) below, and

(b)so much (if any) of the tax that would, apart from this section, have been chargeable on the value transferred by the relevant transfer as is attributable to the value of property other than the special rate property.

(6)The chargeable transfer postulated in subsection (5)(a) above is one—

(a)the value transferred by which is equal to the value transferred by the relevant transfer or, where only part of that value is attributable to the special rate property, that part of that value;

(b)which is made at the time of the relevant transfer by a transferor who has in the preceding seven years made chargeable transfers having an aggregate value equal to the aggregate of the values transferred by any chargeable transfers made by the settlor in the period of seven years ending with the date of the potentially exempt transfer; and

(c)for which the applicable rate or rates are one-half of the rate or rates referred to in section 7(1) above.

(7)This section has effect subject to section 54B below.]

Textual Amendments

F261Finance Act 1987 (No. 2) Sch. 7 para. 1,with effect from 17March 1987.

F263Words in s. 54A(2)(c)(d)(i) repealed (22.3.2006 with effect as mentioned in Sch. 20 para. 16(4) of the amending Act) by Finance Act 2006 (c. 25), ss. 156, 160, Sch. 20 para. 16(3)(a)(b), {Sch. 26 Pt. 6 Note 1}

Modifications etc. (not altering text)

[F26554B Provisions supplementary to section 54A.U.K.

(1)The death of the settlor, at any time after a chargeable transfer to which section 54A above applies, shall not increase the tax chargeable on the value transferred by the transfer unless, at the time of the transfer, the tax determined in accordance with subsection (5) of that section is greater than the tax that would be chargeable apart from that section.

(2)The death of the person who was beneficially entitled to the relevant interest, at any time after a chargeable transfer to which section 54A above applies, shall not increase the tax chargeable on the value transferred by the transfer unless, at the time of the transfer, the tax that would be chargeable apart from that section is greater than the tax determined in accordance with subsection (5) of that section.

(3)Where the tax chargeable on the value transferred by a chargeable transfer to which section 54A above applies falls to be determined in accordance with subsection (5) of that section, the amount referred to in paragraph (a) of that subsection shall be treated for the purposes of this Act as tax attributable to the value of the property in which the relevant interest subsisted.

(4)Subsection (5) below shall apply if—

(a)during the period of seven years preceding the date on which a chargeable transfer to which section 54A above applies (“the current transfer”) is made, there has been another chargeable transfer to which that section applied, and

(b)the person who is for the purposes of the current transfer the settlor mentioned in subsection (2)(a) of that section is the settlor for the purposes of the other transfer (whether or not the settlements are the same);

and in subsections (5) and (6) below the other transfer is referred to as the “previous transfer”.

(5)Where this subsection applies, the appropriate amount in relation to the previous transfer (or, if there has been more than one previous transfer, the aggregate of the appropriate amounts in relation to each) shall, for the purposes of calculating the tax chargeable on the current transfer, be taken to be the value transferred by a chargeable transfer made by the settlor immediately before the potentially exempt transfer was made.

(6)In subsection (5) above “the appropriate amount”, in relation to a previous transfer, means so much of the value transferred by the previous transfer as was attributable to the value of property which was the special rate property in relation to that transfer.

(7)In this section—

Textual Amendments

F265Finance Act 1987 (No. 2) Sch. 7 para. 1,with effect from 17March 1987.

[F26655A Purchased settlement powersU.K.

(1)Where a person makes a disposition by which he acquires a settlement power for consideration in money or money’s worth—

(a)section 10(1) above shall not apply to the disposition;

(b)the person shall be taken for the purposes of this Act to make a transfer of value;

(c)the value transferred shall be determined without bringing into account the value of anything which the person acquires by the disposition; and

(d)sections 18 and 23 to 27 above shall not apply in relation to that transfer of value.

(2)For the purposes of this section, a person acquires a settlement power if he becomes entitled—

(a)to a settlement power,

(b)to exercise, or to secure or prevent the exercise of, a settlement power (whether directly or indirectly), or

(c)to restrict, or secure a restriction on, the exercise of a settlement power (whether directly or indirectly),

as a result of transactions which include a disposition (whether to him or another) of a settlement power or of any power of a kind described in paragraph (b) or (c) above which is exercisable in relation to a settlement power.]

Textual Amendments

F266S. 55A inserted (24.7.2002 with effect as mentioned in s. 119(6) of the amending Act) by 2002 c. 23, s. 119(3)(6)

55. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56 Exclusion of certain exemptions.U.K.

(1)Sections 18 and 23 to 27 above shall not apply in relation to property which is given in consideration of the transfer of a reversionary interest if, by virtue of section 55(1) above, that interest does not form part of the estate of the person acquiring it.

(2)Where a person acquires a reversionary interest in any settled property for a consideration in money or money’s worth, section 18 above shall not apply in relation to the property when it becomes the property of that person on the termination of the interest on which the reversionary interest is expectant.

(3)Sections 23 to 27 above shall not apply in relation to any property if—

(a)the property is an interest in possession in settled property and the settlement does not come to an end in relation to that settled property on the making of the transfer of value, or

(b)immediately before the time when it becomes the property of the exempt body it is comprised in a settlement and, at or before that time, an interest under the settlement is or has been acquired for a consideration in money or money’s worth by that or another exempt body.

(4)In subsection (3)(b) above “exempt body” means a charity, political party or other body within sections 23 [F268to 25] above or the trustees of a settlement in relation to which a direction under paragraph 1 of Schedule 4 to this Act has effect; and for the purposes of subsection (3)(b) there shall be disregarded any acquisition from a charity, political party or body within sections 23 to 25.

(5)For the purposes of subsections (2) and (3) above, a person shall be treated as acquiring an interest for a consideration in money or money’s worth if he becomes entitled to it as a result of transactions which include a disposition [F269for such consideration] (whether to him or another) of that interest or of other property.

(6)Nothing in this section shall apply to a transfer of value if or to the extent that it is a disposition whereby the use of money or other property is allowed by one person to another.

(7)Subsection (2) above shall not apply where the acquisition of the reversionary interest was before 16th April 1976; and where the acquisition was on or after that date but before 12th April 1978 that subsection shall have effect—

(a)with the substitution for the words “section 18 above” of the words “sections 18 and 23 [F268to 25] above”, and

(b)with the insertion after the word “person” in both places where it occurs of the words “or body”.

(8)Subsection (3)(b) above shall not apply where the acquisition of the interest was before 12th April 1978; and subsection (5) above shall not apply where the person concerned became entitled to the interest before that date.

Textual Amendments

F268Words in s. 56(4)(7) substituted (31.7.1998 with effect in relation to any property becoming the property of any person on or after 17.3.1998) by 1998 c. 36, s. 143(3)

F269Finance Act 1987 (No. 2) Sch. 7, para. 2,with effect from 17March 1987.

57 Application of certain exemptions.U.K.

(1)Subject to subsection (3) below, references to transfers of value in sections 19 and 22 above shall be construed as including references to events on the happening of which tax is chargeable under section 52 above, and references to the transferor and (in section 22(3) and (4)) to a disposition shall be construed accordingly.

(2)For the purposes of its application, by virtue of subsection (1) above, to the termination of interests in possession in settled property, section 22 above shall have effect as if—

(a)references to transfers of value made by gifts in consideration of marriage [F270or civil partnership] were references to the termination of such interests in consideration of marriage [F270or civil partnership];

(b)references to outright gifts were references to cases where the property ceases on the termination to be settled property; and

(c)references to cases where the property is settled by the gift were references to cases where it remains settled property after the termination.

(3)Subsection (1) above shall not apply to a transfer of value—

(a)unless the transferor has in accordance with subsection (4) below given to the trustees of the settlement a notice informing them of the availability of an exemption, and

(b)except to the extent specified in that notice.

(4)A notice under subsection (3) above shall be in such form as may be prescribed by the Board and shall be given before the end of the period of six months beginning with the date of the transfer of value.

(5)Section 27 above shall apply where the value transferred by a transfer of value is attributable to property which immediately after the transfer remains comprised in a settlement as it applies where property becomes comprised in a settlement by virtue of the transfer.

[F27157A Relief where property enters maintenance fund.U.K.

(1)Subject to the following provisions, subsection (2) below applies where—

(a)a person dies who immediately before his death was beneficially entitled to an interest in possession in property comprised in a settlement, and

(b)within two years after his death the property becomes held on trusts (whether of that or another settlement) by virtue of which a direction under paragraph 1 of Schedule 4 to this Act is given in respect of the property.

[F272(1A)Where the interest mentioned in subsection (1)(a) above is one to which the person became beneficially entitled on or after 22nd March 2006, subsection (2) below does not apply unless, immediately before the person's death, the interest was—

(a)an immediate post-death interest,

(b)a disabled person's interest, or

(c)a transitional serial interest,

[F273or fell within section 5(1B) above.]]

(2)Where this subsection applies, this Act shall have effect as if the property had on the death of the deceased become subject to the trusts referred to in subsection (1)(b) above; and accordingly no disposition or other event occurring between the date of the death and the date on which the property becomes subject to those trusts shall, so far as it relates to the property, be a transfer of value or otherwise constitute an occasion for a charge to tax.

(3)Where property becomes held on trusts of the kind specified in paragraph (b) of subsection (1) above as the result of proceedings before a court and could not have become so held without such proceedings, that paragraph shall have effect as if it referred to three years instead of two.

(4)Subsection (2) above shall not apply if—

(a)the disposition by which the property becomes held on the trusts referred to in subsection (1)(b) above depends on a condition or is defeasible; or

(b)the property which becomes held on those trusts is itself an interest in settled property; or

(c)the trustees who hold the property on those trusts have, for a consideration in money or money’s worth, acquired an interest under a settlement in which the property was comprised immediately before the death of the person referred to in subsection (1)(a) above or at any time thereafter; or

(d)the property which becomes held on those trusts does so for a consideration in money or money’s worth, or is acquired by the trustees for such a consideration, or has at any time since the death of the person referred to in subsection (1)(a) above been acquired by any other person for such a consideration.

(5)If the value of the property when it becomes held on the trusts referred to in subsection (1)(b) above is lower than so much of the value transferred on the death of the person referred to in subsection (1)(a) as is attributable to the property, subsection (2) above shall apply to the property only to the extent of the lower value.

(6)For the purposes of this section, a person shall be treated as acquiring property for a consideration in money or money’s worth if he becomes entitled to it as a result of transactions which include a disposition for such consideration (whether to him or another) of that or other property. F271]]

Textual Amendments

F271Finance Act 1987 Sch. 9, para. 1,in relation to deaths occurring on or after 17March 1987.

F273Words in s. 57A(1A) inserted (with effect as mentioned in s. 53(10) of the amending Act) by Finance Act 2010 (c. 13), s. 53(5)

CHAPTER IIIU.K. SETTLEMENTS WITHOUT INTERESTS IN POSSESSION [F274, AND CERTAIN SETTLEMENTS IN WHICH INTERESTS IN POSSESSION SUBSIST]

Textual Amendments

F274Words in Pt. 3 Ch. 3 heading added (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 para. 20(5)

Modifications etc. (not altering text)

C24 See Finance Act 1990 s. 126—exemption for pools payments to trustees for football ground improvements in respect of events on or after 6April 1990.

C25Pt. 3 Ch. 3 modified (22.7.2004) by Finance Act 2004 (c. 12), s. 283, Sch. 36 para. 57(1) (with s. 283(5))

C26Pt. 3 Ch. 3 modified (22.7.2004) by Finance Act 2004 (c. 12), s. 283, Sch. 36 para. 56(2)(b) (with s. 283(5))

C27Part III Chapter III (ss.58-85) excluded by Finance Act 1991 (c.31, SIF 63:1), s. 121(4).

Pt. III Ch. III (ss. 58-85) restricted (3.5.1994) by 1994 c. 9, s. 248

InterpretationU.K.

58 Relevant property.U.K.

(1)In this Chapter “relevant property” means settled property in which no qualifying interest in possession subsists, other than—

(a)property held for charitable purposes only, whether for a limited time or otherwise;

(b)property to which section 71, [F27571A, 71D,] 73, 74 or 86 below applies [F276(but see subsection (1A) below)] ;

(c)property held on trusts which comply with the requirements mentioned in paragraph 3(1) of Schedule 4 to this Act, and in respect of which a direction given under paragraph 1 of that Schedule has effect;

[F277(d)property which is held for the purposes of a registered pension scheme [F278, a qualifying non-UK pension scheme or a]section 615(3) scheme;]

(e)property comprised in a trade or professional compensation fund;

[F279(ea)property comprised in an asbestos compensation settlement, F280. . . ]

[F281(eb)property comprised in a decommissioning security settlement; and]

(f)excluded property.

[F282(1A)Settled property to which section 86 below applies is “relevant property” for the purposes of this Chapter if—

(a)an interest in possession subsists in that property, and

(b)that interest falls within subsection (1B) or (1C) below.

(1B)An interest in possession falls within this subsection if—

(a)an individual is beneficially entitled to the interest in possession,

(b)the individual became beneficially entitled to the interest in possession on or after 22nd March 2006, and

(c)the interest in possession is—

(i)not an immediate post-death interest,

(ii)not a disabled person's interest, and

(iii)not a transitional serial interest.

(1C)An interest in possession falls within this subsection if—

(a)a company is beneficially entitled to the interest in possession,

(b)the business of the company consists wholly or mainly in the acquisition of interests in settled property,

(c)the company has acquired the interest in possession for full consideration in money or money's worth from an individual who was beneficially entitled to it,

(d)the individual became beneficially entitled to the interest in possession on or after 22nd March 2006, and

(e)immediately before the company acquired the interest in possession, the interest in possession was neither an immediate post-death interest nor a transitional serial interest.]

(2)The reference in subsection (1)(d) above to property which is F283. . . held for the purposes of a F283. . . scheme does not include a reference to a benefit which, having become payable under the F283. . . scheme, becomes comprised in a settlement.

[F284(2A)For the purposes of subsection (1)(d) above—

(a)property applied to pay lump sum death benefits within section 168(1) of the Finance Act 2004 in respect of a member of a registered pension scheme is to be taken to be held for the purposes of the scheme from the time of the member's death until the payment is made, and

(b)property applied to pay lump sum death benefits in respect of a member of [F285a qualifying non-UK pension scheme or] a section 615(3) scheme is to be taken to be so held if the benefits are paid within the period of two years beginning with the earlier of the day on which the member's death was first known to the trustees or other persons having the control of the fund and the day on which they could first reasonably be expected to have known of it.]

(3)In subsection (1)(e) above “trade or professional compensation fund” means a fund which is maintained or administered by a representative association of persons carrying on a trade or profession and the only or main objects of which are compensation for or relief of losses or hardship that, through the default or alleged default of persons carrying on the trade or profession or of their agents or servants, are incurred or likely to be incurred by others.

[F286(4)In subsection (1)(ea) above “asbestos compensation settlement” means a settlement—

(a)the sole or main purpose of which is making compensation payments to or in respect of individuals who have, or had before their death, an asbestos-related condition, and

(b)which is made before 24 March 2010 in pursuance of an arrangement within subsection (5) below.

(5)An arrangement is within this subsection if it is—

(a)a voluntary arrangement that has taken effect under Part 1 of the Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) Order 1989,

(b)a compromise or arrangement that has taken effect under section 425 of the Companies Act 1985, Article 418 of the Companies (Northern Ireland) Order 1986 or Part 26 of the Companies Act 2006, or

(c)an arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) above that has taken effect under, or as a result of, the law of a country or territory outside the United Kingdom.]

[F287(6)For the purposes of subsection (1)(eb) above a settlement is a “decommissioning security settlement” if the sole or main purpose of the settlement is to provide security for the performance of obligations under an abandonment programme.

(7)In subsection (6)—

Textual Amendments

F275Words in s. 58(1)(b) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 18

F276Words in s. 58(1)(b) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 19(2)

F277S. 58(1)(d) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 203(3), 284 (with Sch. 36)

F278Words in s. 58(1)(d) substituted (retrospective to 6.4.2006) by Finance Act 2008 (c. 9), s. 92, Sch. 29 para. 18(3)(a)(8)

F279S. 58(1)(ea) substituted (retrospective to 6.4.2006) for word at end of s. 58(1)(e) by Finance (No. 3) Act 2010 (c. 33), s. 31, Sch. 14 para. 1(2)(4)

F280Word in s. 58(1) omitted (retrospective to 20.3.1993) by virtue of Finance Act 2013 (c. 29), s. 86(2)(4) (with s. 86(5)(6))

F281S. 58(1)(eb) and word inserted (retrospective to 20.3.1993) by Finance Act 2013 (c. 29), s. 86(2)(4) (with s. 86(5)(6))

F282S. 58(1A)-(1C) inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 paras. 7, 19(3)

F283Words in s. 58(2) repealed (6.4.2006) by Finance Act 2004 (c. 12), s. 326, Sch. 42 Pt. 3 (with Sch. 36)

F284S. 58(2A) inserted (with effect in relation to lump sum death benefits paid on or after 6.4.2006) by Finance Act 2007 (c. 11), s. 70, Sch. 20 paras. 20, 24(9)

F285Words in s. 58(2A)(b) inserted (retrospective to 6.4.2006) by Finance Act 2008 (c. 9), s. 92, Sch. 29 para. 18(3)(b)(8)

F286S. 58(4)(5) inserted (retrospective to 6.4.2006) by Finance (No. 3) Act 2010 (c. 33), s. 31, Sch. 14 para. 1(3)(4)

F287S. 58(5)(6) inserted (retrospective to 20.3.1993) by Finance Act 2013 (c. 29), s. 86(3)(4) (with s. 86(5)(6))

Modifications etc. (not altering text)

59 Qualifying interest in possession.U.K.

[F288(1)In this Chapter “qualifying interest in possession” means—

(a)an interest in possession—

(i)to which an individual is beneficially entitled, and

(ii)which, if the individual became beneficially entitled to the interest in possession on or after 22nd March 2006, is an immediate post-death interest, a disabled person's interest or a transitional serial interest, or

(b)an interest in possession to which, where subsection (2) below applies, a company is beneficially entitled.]

(2)This subsection applies where—

(a)the business of the company consists wholly or mainly in the acquisition of interests in settled property, and

(b)the company has acquired the interest for full consideration in money or money’s worth from an individual who was beneficially entitled to it[F289, and

(c)if the individual became beneficially entitled to the interest in possession on or after 22nd March 2006, the interest is an immediate post-death interest, or a disabled person's interest within section 89B(1)(c) or (d) below or a transitional serial interest, immediately before the company acquires it.]

(3)Where the acquisition mentioned in paragraph (b) of subsection (2) above was before 14th March 1975—

(a)the condition set out in paragraph (a) of that subsection shall be treated as satisfied if the business of the company was at the time of the acquisition such as is described in that paragraph, and

(b)that condition need not be satisfied [F290if the company is an insurance company (within the meaning of [F291 Part 2 of the Finance Act 2012] ) and [F292has permission—

(i)under [F293Part 4A] of the Financial Services and Markets Act 2000, or

(ii)under paragraph 15 of Schedule 3 to that Act (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule),

to effect or carry out contracts of long-term insurance.]]

[F294(4)In subsection (3)(b) above “contracts of long-term insurance” means contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.]

Textual Amendments

F288S. 59(1) substituted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 para. 20(2)

F289S. 59(2)(c) and preceding word inserted (22.3.2006) by Finance Act 2006 (c. 25), s. 156, Sch. 20 para. 20(3)

F290Words in s. 59(3) substituted (1.5.1995 with effect as mentioned in s. 52(5) of the amending Act) by 1995 c. 4, s. 52(4)

F291Words in s. 59(3)(b) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 69

F292Words in s. 59(3) substituted (1.12.2001 with effect as mentioned in art. 5(4) of the amending S.I.) by S.I. 2001/3629, art. 5(1)(2)(4)

F293Words in s. 59(3)(b)(i) substituted (1.4.2013) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 18 para. 44 (with Sch. 20); S.I. 2013/423, art. 3, Sch.

F294S. 59(4) added (1.12.2001 with effect as mentioned in art. 5(4) of the amending S.I.) by S.I. 2001/3629, art. 5(1)(3)(4)

60 Commencement of settlement.U.K.

In this Chapter references to the commencement of a settlement are references to the time when property first becomes comprised in it.

61 Ten-year anniversary.U.K.

(1)In this Chapter “ten-year anniversary” in relation to a settlement means the tenth anniversary of the date on which the settlement commenced and subsequent anniversaries at ten-yearly intervals, but subject to subsections (2) to (4) below.

(2)The ten-year anniversaries of a settlement treated as made under section 80 below shall be the dates that are (or would but for that section be) the ten-year anniversaries of the settlement first mentioned in that section.

(3)No date falling before 1st April 1983 shall be a ten-year anniversary.

(4)Where—

(a)the first ten-year anniversary of a settlement would apart from this subsection fall during the year ending with 31st March 1984, and

(b)during that year an event occurs in respect of the settlement which could not have occurred except as the result of some proceedings before a court, and

(c)the event is one on which tax was chargeable under Chapter II of Part IV of the M9Finance Act 1982 (or, apart from Part II of Schedule 15 to that Act, would have been so chargeable),

the first ten-year anniversary shall be taken to be 1st April 1984 (but without affecting the dates of later anniversaries).

Marginal Citations

62 Related settlements.U.K.

(1)For the purposes of this Chapter two settlements are related if and only if—

(a)the settlor is the same in each case, and

(b)they commenced on the same day,

but subject to subsection (2) below.

(2)Two settlements are not related for the purposes of this Chapter if all the property comprised in one or both of them was immediately after the settlement commenced held for charitable purposes only without limit of time (defined by a date or otherwise).

[F29562ASame-day additionsU.K.

(1)For the purposes of this Chapter, there is a “same-day addition”, in relation to a settlement (“settlement A”), if—

(a)there is a transfer of value by a person as a result of which the value immediately afterwards of the property comprised in settlement A is greater than the value immediately before,

(b)as a result of the same transfer of value, or as a result of another transfer of value made by that person on the same day, the value immediately afterwards of the property comprised in another settlement (“settlement B”) is greater than the value immediately before,

(c)that person is the settlor of settlement A and settlement B,

(d)at any point in the relevant period, all or any part of the property comprised in settlement A was relevant property, and

(e)at that point, or at any other point in the relevant period, all or any part of the property comprised in settlement B was relevant property.

For exceptions, see section 62B.

(2)Where there is a same-day addition, references in this Chapter to its value are to the difference between the two values mentioned in subsection (1)(b).

(3)The relevant period” means—

(a)in the case of settlement A, the period beginning with the commencement of settlement A and ending immediately after the transfer of value mentioned in subsection (1)(a), and

(b)in the case of settlement B, the period beginning with the commencement of settlement B and ending immediately after the transfer of value mentioned in subsection (1)(b)).

(4)The transfer or transfers of value mentioned in subsection (1) include a transfer or transfers of value as a result of which property first becomes comprised in settlement A or settlement B; but not if settlements A and B are related settlements.

(5)For the purposes of subsection (1) above, it is immaterial whether the amount of the property comprised in settlement A or settlement B (or neither) was increased as a result of the transfer or transfers of value mentioned in that subsection.

Textual Amendments

F295Ss. 62A-62C inserted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 2

62BSame day additions: exceptionsU.K.

(1)There is not a same-day addition for the purposes of this Chapter if any of the following conditions is met—

(a)immediately after the transfer of value mentioned in section 62A(1)(a) all the property comprised in settlement A was held for charitable purposes only without limit of time (defined by a date or otherwise),

(b)immediately after the transfer of value mentioned in section 62A(1)(b) all the property comprised in settlement B was so held,

(c)either or each of settlement A and settlement B is a protected settlement (see section 62C), and

(d)the transfer of value, or either or each of the transfers of value, mentioned in section 62A(1)(a) and (b)—

(i)results from the payment of a premium under a contract of life insurance the terms of which provide for premiums to be due at regular intervals of one year or less throughout the contract term, or

(ii)is made to fund such a payment.

(2)If the transfer of value, or each of the transfers of value, mentioned in section 62A(1) is not the transfer of value under section 4 on the settlor's death, there is a same-day addition for the purposes of this Chapter only if conditions A and B are met.

(3)Condition A is that—

(a)the difference between the two values mentioned in section 62A(1)(a) exceeds £5,000, or

(b)in a case where there has been more than one transfer of value within section 62A(1)(a) on the same day, the difference between—

(i)the value of the property comprised in settlement A immediately before the first of those transfers, and

(ii)the value of the property comprised in settlement A immediately after the last of those transfers,

exceeds £5,000.

(4)Condition B is that—

(a)the difference between the two values mentioned in section 62A(1)(b) exceeds £5,000, or

(b)in a case where there has been more than one transfer of value within section 62A(1)(b), the difference between—

(i)the value of the property comprised in settlement B immediately before the first of those transfers, and

(ii)the value of the property comprised in settlement B immediately after the last of those transfers,

exceeds £5,000.

Textual Amendments

F295Ss. 62A-62C inserted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 2

62CProtected settlementsU.K.

(1)For the purposes of this Chapter, a settlement is a “protected settlement” if it commenced before 10 December 2014 and either condition A or condition B is met.

(2)Condition A is met if there have been no transfers of value by the settlor on or after 10 December 2014 as a result of which the value of the property comprised in the settlement was increased.

(3)Condition B is met if—

(a)there has been a transfer of value by the settlor on or after 10 December 2014 as a result of which the value of the property comprised in the settlement was increased, and

(b)that transfer of value was the transfer of value under section 4 on the settlor's death before 6 April 2017 and it had the result mentioned by reason of a protected testamentary disposition.

(4)In subsection (3)(b) “protected testamentary disposition” means a disposition effected by provisions of the settlor's will that at the settlor's death are, in substance, the same as they were immediately before 10 December 2014.]

Textual Amendments

F295Ss. 62A-62C inserted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 2

63 Minor interpretative provisions.U.K.

In this Chapter, unless the context otherwise requires—

Principal charge to taxU.K.

64 Charge at ten-year anniversary.U.K.

[F296(1)]Where immediately before a ten-year anniversary all or any part of the property comprised in a settlement is relevant property, tax shall be charged at the rate applicable under sections 66 and 67 below on the value of the property or part at that time.

[F297(1A)For the purposes of subsection (1) above, property held by the trustees of a settlement immediately before a ten-year anniversary is to be regarded as relevant property comprised in the settlement at that time if—

(a)it is income of the settlement,

(b)the income arose before the start of the five years ending immediately before the ten-year anniversary,

(c)the income arose (directly or indirectly) from property comprised in the settlement that, when the income arose, was relevant property, and

(d)when the income arose, no person was beneficially entitled to an interest in possession in the property from which the income arose.

(1B)Where the settlor of a settlement was not domiciled in the United Kingdom at the time the settlement was made [F298and is not a formerly domiciled resident for the tax year in which the ten-year anniversary falls] , income of the settlement is not to be regarded as relevant property comprised in the settlement as a result of subsection (1A) above so far as the income—

(a)is situated outside the United Kingdom, or

(b)is represented by a holding in an authorised unit trust or a share in an open-ended investment company.

(1C)Income of the settlement is not to be regarded as relevant property comprised in the settlement as a result of subsection (1A) above so far as the income—

(a)is represented by securities issued by the Treasury subject to a condition of the kind mentioned in subsection (2) of section 6 above, and

(b)it is shown that all known persons for whose benefit the settled property or income from it has been or might be applied, or who are or might become beneficially entitled to an interest in possession in it, are persons of a description specified in the condition in question.]

[F299(2)For the purposes of subsection (1) above, a foreign-owned work of art which is situated in the United Kingdom for one or more of the purposes of public display, cleaning and restoration (and for no other purpose) is not to be regarded as relevant property.]

Textual Amendments

F296S. 64 renumbered (6.4.2009 with effect as mentioned in art. 13(5) of the amending S.I.) as s. 64(1) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730), art. 13(3)

F297S. 64(1A)-(1C) inserted (with effect in accordance with Sch. 25 para. 4(3) of the amending Act) by Finance Act 2014 (c. 26), Sch. 25 para. 4(1)

F298Words in s. 64(1B) inserted (with effect in accordance with s. 30(9)-(12) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 30(5)

F299S. 64(2) inserted (6.4.2009 with effect as mentioned in art. 13(5) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730), art. 13(3)

65 Charge at other times.U.K.

(1)There shall be a charge to tax under this section—

(a)where the property comprised in a settlement or any part of that property ceases to be relevant property (whether because it ceases to be comprised in the settlement or otherwise); and

(b)in a case in which paragraph (a) above does not apply, where the trustees of the settlement make a disposition as a result of which the value of relevant property comprised in the settlement is less than it would be but for the disposition.

(2)The amount on which tax is charged under this section shall be—

(a)the amount by which the value of relevant property comprised in the settlement is less immediately after the event in question that it would be but for the event, or

(b)where the tax payable is paid out of relevant property comprised in the settlement immediately after the event, the amount which, after deducting the tax, is equal to the amount on which tax would be charged by virtue of paragraph (a) above.

(3)The rate at which tax is charged under this section shall be the rate applicable under section 68 or 69 below.

(4)Subsection (1) above does not apply if the event in question occurs in a quarter beginning with the day on which the settlement commenced or with a ten-year anniversary.

(5)Tax shall not be charged under this section in respect of—

(a)a payment of costs or expenses (so far as they are fairly attributable to relevant property), or

(b)a payment which is (or will be) income of any person for any of the purposes of income tax or would for any of those purposes be income of a person not resident in the United Kingdom if he were so resident,

or in respect of a liability to make such a payment.

(6)Tax shall not be charged under this section by virtue of subsection (1)(b) above if the disposition is such that, were the trustees beneficially entitled to the settled property, section 10 or section 16 above would prevent the disposition from being a transfer of value.

(7)Tax shall not be charged under this section by reason only that property comprised in a settlement ceases to be situated in the United Kingdom and thereby becomes excluded property by virtue of section 48(3)(a) above.

[F300(7A)Tax shall not be charged under this section by reason only that property comprised in a settlement becomes excluded property by virtue of section 48(3A)(a) (holding in an authorised unit trust or a share in an open-ended investment company is excluded property unless settlor domiciled in UK when settlement made).]

[F301(7B)Tax shall not be charged under this section by reason only that property comprised in a settlement becomes excluded property by virtue of section 48(3E) ceasing to apply in relation to it.]

[F302(7C)Tax shall not be charged under this section by reason only that property comprised in a settlement ceases to any extent to be property to which paragraph 2 or 3 of Schedule A1 applies and thereby becomes excluded property by virtue of section 48(3)(a) above.

(7D)Tax shall not be charged under this section where property comprised in a settlement or any part of that property—

(a)is, by virtue of paragraph 5(2)(a) of Schedule A1, not excluded property for the two year period referred to in that paragraph, but

(b)becomes excluded property at the end of that period.]

(8)If the settlor of a settlement was not domiciled in the United Kingdom when the settlement was made, tax shall not be charged under this section by reason only that property comprised in the settlement is invested in securities issued by the Treasury subject to a condition of the kind mentioned in section 6(2) above and thereby becomes excluded property by virtue of section 48(4)(b) above.

(9)For the purposes of this section trustees shall be treated as making a disposition if they omit to exercise a right (unless it is shown that the omission was not deliberate) and the disposition shall be treated as made at the time or latest time when they could have exercised the right.

Textual Amendments

F300S. 65(7A) inserted (retrospective to 16.10.2002) by Finance Act 2013 (c. 29), s. 175

F301S. 65(7B) inserted (with effect in accordance with s. 30(9)-(12) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 30(6)

F302S. 65(7C)(7D) inserted (with effect in accordance with Sch. 10 para. 9 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 10 para. 5

Modifications etc. (not altering text)

C29S. 65 restricted (31.7.1998 with effect as mentioned in s. 161(1) of the amending Act) by 1998 c. 36, s. 161(3)

C30S. 65 restricted (retrospective to 20.3.1993) by Finance Act 2013 (c. 29), s. 86(4)(6)

Rates of principal chargeU.K.

66 Rate of ten-yearly charge.U.K.

(1)Subject to subsection (2) below, the rate at which tax is charged under section 64 above at any time shall be three tenths of the effective rate (that is to say the rate found by expressing the tax chargeable as a percentage of the amount on which it is charged) at which tax would be charged on the value transferred by a chargeable transfer of the description specified in subsection (3) below.

(2)Where the whole or part of the value mentioned in section 64 above is attributable to property which was not relevant property, or was not comprised in the settlement, throughout the period of ten years ending immediately before the ten-year anniversary concerned, the rate at which tax is charged on that value or part shall be reduced by one-fortieth for each of the successive quarters in that period which expired before the property became, or last became, relevant property comprised in the settlement.

[F303(2A)Subsection (2) above does not apply to property which is regarded as relevant property as a result of section 64(1A) (and accordingly that property is charged to tax at the rate given by subsection (1) above).]

(3)The chargeable transfer postulated in subsection (1) above is one—

(a)the value transferred by which is equal to an amount determined in accordance with subsection (4) below;

(b)which is made immediately before the ten-year anniversary concerned by a transferor who has in the [F304preceding seven years] made chargeable transfers having an aggregate value determined in accordance with subsection (5) below; and

[F305(c)on which tax is charged in accordance with section 7(2) of this Act].

(4)The amount referred to in subsection (3)(a) above is equal to the aggregate of—

(a)the value on which is charged under section 64 above;

F306(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)the value, immediately after a related settlement commenced, of the [F307relevant] property then comprised in it;

[F308(d)the value of any same-day addition; and

(e)where—

(i)an increase in the value of the property comprised in another settlement is represented by the value of a same-day addition aggregated under paragraph (d) above, and

(ii)that other settlement is not a related settlement,

the value immediately after that other settlement commenced of the relevant property then comprised in that other settlement;]

but subject to subsection (6) below.

(5)The aggregate value referred to in subsection (3)(b) above is equal to the aggregate of—

(a)the values transferred by any chargeable transfers made by the settlor in the period of [F309seven] years ending with the day on which the settlement commenced, disregarding transfers made on that day or before 27th March 1974, and

(b)the amounts on which any charges to tax were imposed under section 65 above in respect of the settlement in the ten years before the anniversary concerned;

but subject to subsection (6) and section 67 below.

(6)In relation to a settlement which commenced before 27th March 1974—

(a)subsection (4) above shall have effect with the omission of [F310paragraphs (c) to (e)] ; and

(b)subsection (5) above shall have effect with the omission of paragraph (a);

and where tax is chargeable under section 64 above by reference to the first ten-year anniversary of a settlement which commenced before 9th March 1982, the aggregate mentioned in subsection (5) above shall be increased by the amounts of any distribution payments (determined in accordance with the rules applicable under paragraph 11 of Schedule 5 to the M10Finance Act 1975) made out of settled property before 9th March 1982 (or, where paragraph 6, 7 or 8 of Schedule 15 to the M11Finance Act 1982 applied, 1st April 1983, or, as the case may be, 1st April 1984) and within the period of ten years before the anniversary concerned.

Textual Amendments

F303S. 66(2A) inserted (with effect in accordance with Sch. 25 para. 4(3) of the amending Act) by Finance Act 2014 (c. 26), Sch. 25 para. 4(2)

F304Finance Act 1986 Sch. 19 para. 16(1), with effect from 18 March 1986 originally “preceding ten years”.

F305Finance Act 1986 Sch. 19 para. 16(2), with effect from 18 March 1986. Originally “(c) for which the appropriate Table of rates is the second Table in Schedule 1 to this Act.”

F306S. 66(4)(b) and word omitted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 3(2)(a)

F307Word in s. 66(4)(c) inserted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 3(2)(b)

F308S. 66(4)(d)(e) inserted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 3(2)(c)

F309Finance Act 1986 Sch. 19 para. 16(3), with effect from 18 March 1986. Originally “ten”.

F310Words in s. 66(6)(a) substituted (with effect in accordance with Sch. 1 para. 7 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 1 para. 3(3)

Marginal Citations

67 Added property, etc.U.K.

(1)This subsection applies where, after the settlement commenced and after 8th March 1982, but before the anniversary concerned, the settlor made a chargeable transfer as a result of which the value of the property comprised in the settlement was increased.

(2)For the purposes of subsection (1) above, it is immaterial whether the amount of the property so comprised was increased as a result of the transfer, but a transfer as a result of which the value increased but the amount did not shall be disregarded if it is shown that the transfer—

(a)was not primarily intended to increase the value, and

(b)did not result in the value being greater immediately after the transfer by an amount exceeding five per cent. of the value immediately before the transfer.

(3)Where subsection (1) above applies in relation to a settlement which commenced after 26th March 1974, section 66(5)(a) above shall have effect as if it referred to the greater of—

(a)the aggregate of the values there specified, and

(b)the aggregate of the values transferred by any chargeable transfers made by the settlor in the period of [F311seven] years ending with the day on which the chargeable transfer falling within subsection (1) above was made—

(i)disregarding transfers made on that day or before 27th March 1974, and

(ii)excluding the values mentioned in subsection (5) below;

and where the settlor made two or more chargeable transfers falling within subsection (1) above, paragraph (b) above shall be taken to refer to the transfer in relation to which the aggregate there mentioned is the greatest.

(4)Where subsection (1) above applies in relation to a settlement which commenced before 27th March 1974, the aggregate mentioned in section 66(5) above shall be increased (or further increased) by the aggregate of the values transferred by any chargeable transfers made by the settlor in the period of [F312seven] years ending with the day on which the chargeable transfer falling within subsection (1) above was made—

(a)disregarding transfers made on that day or before 27th March 1974, and

(b)excluding the values mentioned in subsection (5) below; and where the settlor made two or more chargeable transfers falling within subsection (1) above, this subsection shall be taken to refer to the transfer in relation to which the aggregate to be added is the greatest.

(5)The values excluded by subsections (3)(b)(ii) and (4)(b) above are—

(a)any value attributable to property whose value is taken into account in determining the amount mentioned in section 66(4) above; and

(b)any value attributable to property in respect of which a charge to tax has been made under section 65 above and by reference to which an amount mentioned in section 66(5)(b) above is determined.

(6)Where the property comprised in a settlement immediately before the ten-year anniversary concerned, or any part of that property, had on any occasion within the preceding ten years ceased to be relevant property then, if on that occasion tax was charged in respect of the settlement under section 65 above, the aggregate mentioned in section 66(5) above shall be reduced by an amount equal to the lesser of—

(a)the amount on which tax was charged under section 65 (or so much of that amount as is attributable to the part in question), and

(b)the value on which tax is charged under section 64 above (or so much of that value as is attributable to the part in question);

and if there were two or more such occasions relating to the property or the same part of it, this subsection shall have effect in relation to each of them.

(7)References in subsection (6) above to the property comprised in a settlement immediately before an anniversary shall, if part only of the settled property was then relevant property, be construed as references to that part.

Textual Amendments

F311Finance Act 1986 Sch. 19 para. 17,with effect from 18March 1986.Originally

“ten”.

F312Finance Act 1986 Sch. 19 para. 17,with effect from 18March 1986.Originally

“ten”.

68 Rate before first ten-year anniversary.U.K.

(1)The rate at which tax is charged under section 65 above on an occasion preceding the first ten-year anniversary after the settlement’s commencement shall be the appropriate fraction of the effective rate at which tax would be charged on the value transferred by a chargeable transfer of the description specified in subsection (4) below (but subject to subsection (6) below).

(2)For the purposes of this section the appropriate fraction is three tenths multiplied by so many fortieths as there are complete successive quarters in the period beginning with the day on which the settlement commenced and ending with the day before the occasion of the charge, but subject to subsection (3) below.

(3)Where the whole or part of the amount on which tax is charged is attributable to property which was not relevant property, or was not comprised in the settlement, throughout the period referred to in subsection (2) above, then in determining the appropriate fraction in relation to that amount or part—

(a)no quarter which expired before the day on which the property became, or last became, relevant property comprised in the settlement shall be counted, but

(b)if that day fell in the same quarter as that in which the period ends, that quarter shall be counted whether complete or not.

(4)The chargeable transfer postulated in subsection (1) above is one—

(a)the value transferred by which is equal to an amount determined in accordance with subsection (5) below;

(b)which is made at the time of the charge to tax under section 65 by a transferor who has in the period of [F313seven] years ending with the day of the occasion of the charge made chargeable transfers having an aggregate value equal to that of any chargeable transfers made by the settlor in the period of [F314seven] years ending with the day on which the settlement commenced, disregarding transfers made on that day or before 27th March 1974; and

[F315(c)on which tax is charged in accordance with section 7(2) of this Act.]

(5)The amount referred to in subsection (4)(a) above is equal to the aggregate of—

(a)the value, immediately after the settlement commenced, of the [F316relevant ] property then comprised in it;

(b)the value, immediately after a related settlement commenced, of the [F317 relevant ] property then comprised in it; F318...

[F319(c)the value, immediately after it became comprised in the settlement, of property which—

(i)became comprised in the settlement after the settlement commenced and before the occasion of the charge under section 65 above, and

(ii)was relevant property immediately after it became so comprised,

whether or not the property has remained relevant property comprised in the settlement;

(d)the value, at the time it became (or last became) relevant property, of property which—

(i)was comprised in the settlement immediately after the settlement commenced and was not then relevant property but became relevant property before the occasion of the charge under section 65 above, or

(ii)became comprised in the settlement after the settlement commenced and before the occasion of the charge under section 65 above, and was not relevant property immediately after it became comprised in the settlement, but became relevant property before the occasion of the charge under that section,

whether or not the property has remained relevant property comprised in the settlement;]

(e)the value of any same-day addition; and

(f)where—

(i)an increase in the value of the property comprised in another settlement is represented by the value of a same-day addition aggregated under paragraph (e) above, and

(ii)that other settlement is not a related settlement,

the value immediately after that other settlement commenced of the relevant property then comprised in that other settlement.

(6)Where the settlement commenced before 27th March 1974, subsection (1) above shall have effect with the substitution of a reference to three tenths for the reference to the appropriate fraction; and in relation to such a settlement the chargeable transfer postulated in that subsection is one—

(a)the value transferred by which is equal to the amount on which tax is charged under section 65 above;

(b)which is made at the time of that charge to tax by a transferor who has in the period of [F320seven] years ending with the day of the occasion of the charge made chargeable transfers having an aggregate value equal to the aggregate of—

(i)any amounts on which any charges to tax have been imposed under section 65 above in respect of the settlement in [F321the period of ten years ending with that day]; and

(ii)the amounts of any distribution payments (determined in accordance with the rules applicable under paragraph 11 of Schedule 5 to the M12Finance Act 1975) made out of the settled property before 9th March 1982 (or, where paragraph 6, 7 or 8 of Schedule 15 to the