Inheritance tax .281986 to present.29 History of inheritance taxes in the United Kingdom

1 inheritance tax (1986 present)

1.1 estate on death
1.2 chargeable transfers prior death
1.3 rate of tax
1.4 additional nil rate band on main residence
1.5 pre-owned assets

inheritance tax (1986 present)

nigel lawson arranged convert capital transfer tax inheritance tax in 1986

nigel lawson, in 1986 budget speech, moved abolish tax on lifetime gifts altogether, explaining:

this implemented in finance act 1986.

estate on death

for iht purposes, person s estate includes:

excluded property comprises:

relief granted, value of estate reduced respect specified business property, agricultural property, woodlands, transfers made within 3 years of death made @ diminished value, , other cases.

chargeable transfers prior death

deductions made estate s nil rate band respect transfers of value made in excess of specified limits, other potentially exempt transfers made more 7 years before transferor s death. transfers of value made within specified limits known exempt transfers .

transfers of value include gifts arising amount asset sold less have been sold on open market, sale parent child. gifts can arise where:

a lease granted @ less full market rent, shares in private company rearranged, rights in such shares altered, or there has been agreement act guarantor else s debts
transfers of value, @ loss donor, have been made trusts
premiums have been paid on life insurance policy benefit of else
the deceased ceased have right benefit trust or settlement

where value of such transfers exhausts amount available nil rate band, iht assessed on excess amount, recipients of such transfers bear liability pay.

rate of tax

tax assessed @ 40% of net value of estate, after application of nil rate band. applicable nil rate band depend on date of death: if date falls @ time 6 august 5 april in given tax year, current year s band apply; but, date after 5 april before 6 august, , application grant filed before 6 august, prior year s band apply.

for deaths occurring after 5 april 2012, tax assessed @ 36%, @ least 10% of specified baseline amount of estate has been bequeathed charitable gifts. purposes of calculation, property of estate separated 3 components, each of tested see if charitable gifts sufficient qualify lesser rate:

the survivorship component, comprising joint or common property passes on death survivorship or special destination;
the settled property component, made of settled property in deceased had interest in possession beneficially entitled before death; and
the general component, consisting of other property in estate, exception of arising gifts reservation.

if applicable gifts meet 10% threshold given component, in circumstances, upon election, 36% rate applies whole estate. there several options available estates able achieve threshold, such having specifying relevant gifts in terms of percentages of assets, or successors executing deed of variation attain desired result.

additional nil rate band on main residence

in summer budget of 2015 new measure outlined reduce burden of iht families making easier pass on family home direct descendants without tax charge. came effect upon passage of finance (no. 2) act 2015, , provided following scheduled amounts:

£100,000 2017-18 tax year
£125,000 2018-19 tax year
£150,000 2019-20 tax year
£175,000 2020-21 tax year
for subsequent tax years, amount linked september–september rise in consumer price index

the finance act 2016 provided further relief in cases or part of additional band lost, person had downsized less valuable residence or had ceased own residence after 8 july 2015 (and before person has died). conditional upon deceased having left smaller residence, or assets of equivalent value, direct descendants. these defined lineal descendants, spouses or civil partners of such lineal descendants, or former spouses or civil partners have not become else s spouse or civil partner.

pre-owned assets

effective 2005-06 tax year, finance act 2004 introduced retrospective income tax regime known pre-owned asset tax (poat) covers transactions not made @ arm s length, person either:

disposes of property, or
contributes funds person acquire property,

and subsequently benefits use.

the person liable poat may, while still alive, elect on timely basis have such transactions treated gifts reservations (thus subject iht) respect such transactions made in given tax year.