ABSTRACT
Inheritance tax is one of the taxes charged on the movement of capital, being essentially a tax on the transfer of capital. Inheritance tax had its early origins in estate duty, a tax charged on the property of a deceased person on his death. This duty was later replaced by capital transfer tax (CTT) in 1975, which unlike estate duty, also taxed transfers of capital made by a person during the disponer’s lifetime and on death. CTT later gave way to inheritance tax (in respect of transfers which occurred on or after 18 March 1986), a tax, which like estate duty, imposes a charge on the property of a person on his death, but which also, like CTT, imposes a charge on life time transfers. Inheritance tax differs from CTT in one important respect – unlike CTT, most life time transfers are not immediately chargeable, and, indeed, may never be chargeable. Some of these are potentially chargeable and will become chargeable if the donor or transferor dies within seven years of the transfer. These types of transfer are referred to as potentially exempt transfers (PETs). In effect, therefore, inheritance tax is a charge on transfers made (or deemed to be made) by a person on the occasion of that person’s death, or in the seven year period immediately preceding death. The principal legislation is the Inheritance Tax Act 1984 (IHTA), which originally was the Capital Transfer Tax Act 1984. There are a number of different rates of tax on chargeable transfers. First, there is a nil (0%) rate for transfers of value up to a certain specified amount (this amount varies from year to year – for example, for the 1998-99 year of assessment, this amount is £223,000). Secondly, there is a ‘life’ rate for chargeable dispositions made during the transferor’s lifetime (in 1998-99, this is 20%). Thirdly, there is the normal (or ‘death’) rate, in respect of chargeable transfers occurring on the death of the transferor (in 1998-99, this is 40%: see, generally, s 7 of the IHTA 1984). Tapering relief is available in respect of chargeable transfers made longer than three but less than seven years prior to the transferor’s death (s 7(4) of the IHTA 1984).
