Finance Act 1975

For the purposes of the preceding provisions of this Schedule, a notice under paragraph 6 of this Schedule specifying any determination which can no longer be varied or quashed on appeal shall be sufficient evidence of the matters determined.

Mitigation of penalties

37

The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery of any penalty, and may also, after judgment, further mitigate or entirely remit the penalty.

Refusal of probate or administration where tax unpaid

38

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) In section 42 of the Probate and Legacy Duties Act 1808 after the words “as aforesaid”, where they first occur, there shall be inserted the words “ nor unless that inventory shows by means of such receipt or certification as may be prescribed by the Commissioners of Inland Revenue either that the capital transfer tax payable on the delivery of the inventory has been paid or that no capital transfer tax is so payable ” ; and at the end there shall be inserted the following words—

“ Provided that arrangements may be made between the Court of Session and the said Commissioners providing for the purposes of this section in such cases as may be specified that the said inventory shall be effective without such receipt or certification as aforesaid, or that some other document may be substituted for the inventory ”.

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) The sections inserted by sub-paragraphs (1) . . . and the amendments made by sub-paragraph (2) above have effect in relation to grants and confirmations in respect of the estates of persons dying after the passing of this Act.

Form, verification and delivery of accounts

39

• (1) All accounts and other documents required for the purposes of this Part of this Act shall be in such form and shall contain such particulars as may be prescribed by the Board.

• (2) All accounts to be delivered to the Board under this Part of this Act shall be supported by such books, papers and other documents, and verified (whether on oath or otherwise) in such manner, as the Board may require.

• (3) For the purposes of this Part of this Act, an account delivered to a probate registry pursuant to arrangements made between the President of the Family Division or tine Lord Chief Justice of Northern Ireland and the Board shall be treated as an account delivered to the Board.

40

In the application of this Schedule to Scotland, references to an account required to be delivered to the Board by the personal representatives of a deceased person, however expressed, shall be construed as references to such an inventory or additional inventory as is mentioned in section 38 of the Probate and Legacy Duties Act 1808 which has been duly exhibited as required by that section.

Service of documents

41

A notice or other document which is to be served on a person under this Part of this Act may be delivered to him or left at his usual or last known place of residence or served by post, addressed to him at his usual or last known place of residence or his place of business or employment.

Supplemental

42

• (1) Sections 21, 22 and 35 of the Inland Revenue Regulation Act 1890 (proceedings for fines, etc.) shall not apply in relation to the tax.

• (2) Section 16 of the Stamp Act 1891, section 56 of the Finance Act 1946 and section 27 of the Finance (No. 2) Act (Northern Ireland) 1946 (inspection of public records and records of unit trusts) shall apply in relation to the tax as they apply in relation to stamp duties.

43

Section 44(3) of the Finance Act 1950 and section 3(3) of the Finance Act (Northern Ireland) 1951 (certificate of prospective amount of estate duty) shall, notwithstanding their repeal by this Act, have effect with the necessary modifications in relation to tax for which trustees of a settlement may become liable under section 25(7) of this Act.

44

In the application of this Schedule to Northern Ireland references to the High Court shall, except where the context otherwise requires, be construed as references to a judge of that court

SCHEDULES 5—7

Definition of " settlement" and related expressions

1

• (1) The following provisions of this paragraph apply for determining what is to be taken for the purposes of capital transfer tax to be a settlement, and what property is, accordingly, referred to as property comprised in a settlement or as settled property ; and who is the settlor and a trustee in relation to a settlement.

• (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).

• (5) In sub-paragraph (4) above, " deed " includes any disposition, arrangement, contract, resolution, instrument or writing.

• (6) " 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.

• (7) " Trustee ", in relation to a settlement in relation to which there would be no trustees apart from this sub-paragraph, means any person in whom the settled property or its management is for the time being vested.

• (8) Where more than one person is a settlor in relation to a settlement and the circumstances so require, this Schedule and section 25(3)(d) of this Act shall apply in relation to it as if the settled property were comprised in separate settlements.

• (9) In the application of this Schedule to Scotland, any reference to an interest in possession in settled property is a reference to an interest of any kind under a settlement actually being enjoyed by the person in right of that interest 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.

• (10) In the application of this Part of this Act to Northern Ireland this paragraph 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 sub-paragraph (3) did not include a lease in perpetuity within the meaning of section 1 of the Renewable Leasehold Conversion Act 1849 or a lease to which section 37 of that Act applies.

Excluded property

2

• (1) 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 24(2) of this Act applies to a reversionary interest in the property but does not otherwise apply in relation to the property.

• (2) In determining whether property comprised in a settlement which became so comprised before 10th December 1974 is excluded property section 45 of this Act shall be disregarded.

Interests in possession

3

• (1) A person beneficially entitled to an interest in possession in settled property shall be treated as beneficially entitled to the property in which the interest subsists.

• (2) Where the person entitled to the interest 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 thereof the same proportion as the part of the income to which he is entitled bears to the whole of the income.

• (3) 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 sub-paragraph (4) below, to subsist in such part (or in the whole less such part) of the property as produces that amount in that period.

• (4) The Treasury may from time to time by order made by statutory instrument prescribe a higher and a lower rate for the purposes of this paragraph ; and where tax is chargeable in accordance with sub-paragraph (3) 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.

• (5) Where the person entitled to the interest 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 paragraph 1(3) of this Schedule, 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 Schedule 10 to this Act) bears to the value of the property.

• (7) A statutory instrument made under this paragraph shall be subject to annulment in pursuance of a resolution of the House of Commons.

Termination of interest in possession treated as transfer of value

4

• (1) Where a person beneficially entitled to an interest in possession in any property comprised in a settlement disposes of his interest the disposal—

• (a) is not a transfer of value ; but

• (b) shall be treated for the purposes of this Schedule as the coming to an end of his interest;

and tax shall be charged accordingly under the following provisions of this paragraph.

• (2) Where at any time during the life of a person beneficially entitled to an interest in possession in any property comprised in a settlement his interest comes to an end, tax shall be charged, subject to the following provisions of this paragraph, 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.

• (3) 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 tax shall not be chargeable under this paragraph, except in the case mentioned in sub-paragraph (10)(b) below.

• (4) If the interest comes to an end by being disposed of by the person beneficially entitled thereto and the disposal is for a consideration in money or money's worth, tax shall be chargeable under this paragraph 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.

• (5) 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, tax shall not be chargeable under this paragraph unless the settlor had acquired a reversionary interest in the property for a consideration in money or money's worth.

• (6) If the interest comes to an end and on the same occasion the settlor's spouse becomes beneficially entitled to the settled property, then if—

• (a) the settlor's spouse is then domiciled in the United Kingdom and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which the interest comes to an end ; and

• (b) neither the settlor nor the settlor's spouse had acquired a reversionary interest in the property for a consideration in money or money's worth ;

tax shall not be chargeable under this paragraph.

• (7) Where the person beneficially entitled to the interest is the surviving spouse of a person who has died before 13th November 1974, tax shall not be chargeable under this paragraph if the value of the property in which the interest subsists would, by virtue of section 22(4) of this Act, have been left out of account in determining the value of his estate had he died immediately before the coming to an end of the interest.

• (8) The tax chargeable under this paragraph in a case where—

• (a) the settlement was made before 27th March 1974 ; and

• (b) the interest comes to an end before 10th December 1974 ;

shall not in any case exceed the tax that would be so chargeable if the values transferred by previous chargeable transfers made by the person beneficially entitled to the interest had been equal to the values (if any) on which tax is chargeable under this paragraph on the earlier termination of an interest in the settled property.

• (9) 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 paragraph 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.

• (10) References in this paragraph to any property and to an interest in any property include references to part of any property or interest; and—

• (a) the tax chargeable under this paragraph 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 thereof; 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 sub-paragraph (3) above is less than the value on which tax would be chargeable apart from that sub-paragraph, tax shall be chargeable on a value equal to the difference.

• (11) Tax shall not be chargeable under this paragraph if the settled property is excluded property.

Relief for successive charges on interest in possession

5

• (1) Where the value transferred by a chargeable transfer falls to be determined by reference to the value of any settled property in which there subsists an interest in possession to which the transferor is entitled, and—

• (a) the value transferred by an earlier chargeable transfer also fell to be determined by reference to the value of that property; and

• (b) that earlier transfer either was or included the making of the settlement or was made after the making of the settlement;

then, if the period between those transfers is not more than four years, tax shall be charged as if the value of that property were reduced—

• (i) by 80 per cent, if that period is one year or less;

• (ii) by 60 per cent, if that period is more than one year but not more than two years ;

• (iii) by 40 per cent, if that period is more than two years but not more than three years ; and

• (iv) by 20 per cent, if that period is more than three years.

• (2) Where the transferor became entitled to the interest on the death of a person and estate duty was payable on that death in respect of the settled property sub-paragraph (1) above shall apply as if the period referred to therein were the period between the death and the chargeable transfer.

Charge on capital distributions of settled property

6

• (1) Where a distribution payment is made out of property comprised in a settlement and at the time the payment is made no interest in possession subsists in the property or in the part of it Out of which the payment is made, the payment is in this Schedule referred to as a capital distribution.

• (2) Where a person becomes entitled to an interest in possession in the whole or any part of the property comprised in a settlement at a time when no such interest subsists in the property or that part, a capital distribution shall be treated as being made out of the property or that part of the property; and the amount of the distribution shall be taken to be equal to the value at that time of the property or, if the interest is in part only of that property, of that part.

• (3) Where, at a time when no interest in possession subsists in property comprised in a settlement or in a part of that property, a transaction is made between the trustees of the settlement and a person who is, or is connected with.—

• (a) a person beneficially entitled to an interest in any of the settled property; or

• (b) a person for whose benefit any of the settled property may be applied ;

and, as a result of the transaction, the value of the property or part is less than it would be but for the transaction, a capital distribution shall be treated as being made out of the property or part of an amount equal to that by which that value is less, unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value.

• (4) Tax shall be charged on any capital distribution as on the value transferred by a chargeable transfer where—

• (a) the value transferred less the tax payable on it is equal to the amount of the capital distribution ; and

• (b) the rate applicable is that specified in paragraphs 7 to 9 below;

and in those paragraphs " the assumed transferor " means the person who Would be the transferor in relation to the chargeable transfer assumed by this sub-paragraph and the appropriate Table for the purposes of those paragraphs (including the calculation of any tax that would have been chargeable as mentioned in paragraph 7(2)(a) below) is the Second Table set out in section 37(3) of this Act.

• (5) The reference in sub-paragraph 4(a) above to the tax payable on a capital distribution does not include any tax which is payable by a person to whom a distribution payment is made ; and in relation to a capital distribution treated as made under sub-paragraph (2) or (3) above or paragraph 12, 15(3) or 24(2) below, sub-paragraph (4)(a) above shall have effect as if the words " less the tax payable on it" were omitted.

• (6) Notwithstanding sub-paragraph (1) above, a distribution payment which is made to the settlor or the settlor's spouse shall not be a capital distribution if the settlor or, as the case may be, the settlor's spouse is domiciled in the United Kingdom at the time the payment is made and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which it is made.

• (7) Sub-paragraph (2) above shall not be taken to apply in the case of a person who, on surviving another person for a specified period, becomes entitled to an interest in possession as from the other person's death.

• (8) Where a person entitled to an interest in possession in part of the property comprised in a settlement became so entitled as a member of a class, sub-paragraph (2) above shall not apply on his becoming entitled, as such a member, to an interest in possession in another part of that property, if he becomes so entitled on the death under full age of another member of that class.

Rates of charge on capital distributions following chargeable transfers

7

• (1) This paragraph applies where, at or after the relevant time and before the capital distribution, there has been a transfer of value which satisfies the conditions stated in paragraph 11(2) below.

• (2) So far as the amount on which tax is chargeable, when added to the amount of all previous distribution payments made out of property comprised in the settlement, does not exceed the initial value, the rate chargeable shall be equal to the fraction of which—

• (a) the numerator is the amount of the tax which would have been charged on the value transferred by the relevant transfer, or such part of that amount as is attributable to the initial value, if the value so transferred had been equal to the aggregate of the initial values of the settlement and any related settlement; and

• (b) the denominator is the initial value.

• (3) So far as the amount on which tax is chargeable, when so added, exceeds the initial value, the rate or rates chargeable shall be the rate or rates that would be applicable if the assumed transferor had made previous chargeable transfers and the aggregate of the values transferred by them were equal to the aggregate of—

• (a) the values transferred by any chargeable transfers which the person who made the relevant transfer had made before the relevant transfer;

• (b) the aggregate of the initial values of the settlement and any related settlement; and

• (c) the amounts of any previous distribution payments out of property comprised in the settlement, so far as the tax (if any) chargeable thereon is chargeable in accordance with this sub-paragraph.

Rate of charge on other capital distributions

8

• (1) This paragraph applies where paragraph 7 above does not apply.

• (2) The rate or rates chargeable shall be the rate or rates that would be applicable if the assumed transferor—

• (a) had made previous chargeable transfers in any case where there had been previous distribution payments made on or after 27th March 1974 out of the settled property ; but

• (b) had made no previous chargeable transfers in any other case ;

and, where paragraph (a) above applies, the aggregate of the values transferred by the previous chargeable transfers were equal to the aggregate amounts of the previous distribution payments mentioned therein.

Further property added by settlor

9

• (1) The following provisions of this paragraph apply where, by a transfer of value made by the settlor at any time after the making of the settlement and after 26th March 1974 (in this paragraph referred to as " the subsequent transfer ") further property is added to the property comprised in the settlement immediately before the subsequent transfer (in this paragraph referred to as " the previous property " ).

• (2) The subsequent transfer shall be treated for the purposes of paragraphs 6 to 8 above as the making of a separate settlement and the further property as property comprised in that separate settlement, and the following provisions of this paragraph shall apply for determining the property out of which any capital distributions made after the subsequent transfer are to be treated as made.

• (3) If paragraph 7 above would have applied to a capital distribution made immediately before the subsequent transfer, any capital distribution made after the subsequent transfer shall be treated as made—

• (a) out of the previous property, if or to the extent that the amount of the distribution, when added to the amount of all previous distribution payments made out of the settled property, does not exceed the previous value defined in sub-paragraph (4) below; and

• (b) out of the further property in any other case.

• (4) For the purposes of sub-paragraph (3) above the previous value is the initial value, increased, if there was an earlier transfer which is a " subsequent transfer " as defined above, by the value, immediately after the earlier transfer, of any property added by it to the settled property.

• (5) If paragraph 7 above would not have applied to a capital distribution made immediately before the subsequent transfer, any capital distribution made after the subsequent transfer shall be treated as made—

• (a) out of the previous property, if or to the extent that the amount of the distribution, when added to the amount of any previous distribution payment made since the subsequent transfer, does not exceed the value of the settled property immediately before the subsequent transfer ; and

• (b) out of the further property in any other case ;

and accordingly, where paragraph (b) above applies, the rate or rates chargeable shall be determined in accordance with paragraph 7 above (and, where there is a further subsequent transfer, in accordance with sub-paragraphs (3) and (4) above).

Capital distributions after termination of interest of settlor or settlor's spouse

10

Where, after the termination of an interest in possession in a part (in this paragraph referred to as the chargeable part) of any property comprised in a settlement made after 26th March 1974, a capital distribution is made out of the chargeable part, and—

• (a) the settlor or the settlor's spouse was the person entitled to the interest before its termination, and either the settlor or the settlor's spouse was entitled to an interest in possession in the chargeable part immediately after the making of the settlement; and

• (b) the making of the settlement either was not a transfer of value or was an exempt transfer or a transfer exempt to the extent of the value of the chargeable part;

paragraphs 6 to 9 above shall apply as if the chargeable part were comprised in a separate settlement made by the person entitled to the first-mentioned interest on its termination and the termination of the interest were the relevant transfer; and as if the subsequent termination of any interest of his in any other part of the settled property were an addition made by him to the property comprised in that separate settlement.

Interpretation of paragraphs 6 to 10

11

• (1) The following provisions apply for the interpretation of paragraphs 6 to 10 above.

• (2) The relevant transfer, in relation to any settlement, is the first transfer of value made at or after the relevant time which satisfies the conditions—

• (a) that the value of the property comprised in the settlement or of that part of it out of which the capital distributions are made was taken into account in determining the value transferred; and

• (b) that the transfer was, or would but for paragraph 19(2) below or paragraphs 2 to 7 of Schedule 6 to this Act have been, a chargeable transfer ; and

• (c) that, if the settlement was made before 27th March 1974, the transfer was made neither under paragraph 4 above nor on death ;

and where it was not a chargeable transfer the reference in paragraph 7(2)(a) above to the tax which would have been charged is a reference to the tax which would have been charged but for paragraph 19(2) below or paragraphs 2 to 7 of Schedule 6 to this Act.

• (3) The relevant time, in relation to any settlement, is, if the settled property became comprised in the settlement on the death of any person, the time immediately before his death, and, in any other case, the time when the settlement was made.

• (4) Where, by the same disposition, property ceases to be comprised in one settlement and becomes comprised in another settlement, the property shall be treated as remaining comprised in the first settlement.

• (5) The amount of any distribution payment which is a capital distribution shall be taken (except for the purposes of paragraph 6(4)(a)) to be the amount on which tax is chargeable in respect of it.

• (6) A settlement is related to another if the same transfer of value is the relevant transfer in relation to both ; and for this purpose transfers of value made by the same person on the same day shall be treated as one.

• (7) " Distribution payment" means, subject to sub-paragraph (8) below, any payment which—

• (a) is not income of any person for any of the purposes of income tax and would hot for any of those purposes be income of a person not resident in the United Kingdom if he were so resident; and

• (b) is not a payment in respect of costs or expenses;

and " payment" includes the transfer of assets other than money.

• (8) The amount of any capital distribution treated as made under paragraph 6(2) or (3) above or paragraph 15(3) or 24(2) below shall also be deemed to be a distribution payment; but where, after an amount has been taken into account by virtue of this sub-paragraph as a distribution payment made out of the whole or part of any property, one or more distribution payments are made (otherwise than under this sub-paragraph) out of that property or part, the amount so taken into account shall be treated as reducing the amount of those payments.

• (9) " Initial value", in relation to any settlement, means the value, immediately after the relevant transfer, of the property then comprised in the settlement.

• (10) " Interest in possession " means an interest in possession to which an individual is beneficially entitled or, if the following conditions are satisfied, an interest in possession to which a company is beneficially entitled, the conditions being—

• (a) that the business of the company consists wholly or mainly in the acquisition of interests in settled property ; and

• (b) that the company has acquired the interest for full consideration in money or money's worth from an individual who was beneficially entitled to the interest.

• (11) References to settled property shall be construed as referring only to property which is not excluded property.

Periodic charge to tax

12

• (1) Where, at a relevant anniversary, no interest in possession subsists in the property comprised in a settlement or in a part of that property, a capital distribution of an amount equal to the value immediately before that anniversary of that property or part shall be treated as made out of that property or part, and tax shall be charged on a capital distribution so treated as made at 30 per cent, of the rate at which it would be chargeable under paragraphs 6 to 10 above on a capital distribution of the same amount made at the same date, but subject to any reduction under sub-paragraph (4) below.

• (2) Where the trustees of the settlement are not resident in the United Kingdom a capital distribution of a corresponding amount shall also be treated as made if no interest in possession subsists in the property or in a part thereof at the end of any year in the period of ten years ending with a relevant anniversary, except the last and except any year ending before 1st January 1976 ; and tax shall be charged on a capital distribution so treated as made at 3 per cent, of the rate at which it would be chargeable under paragraphs 6 to 10 above on a capital distribution of the same amount made at the same date.

• (3) Any tax charged by virtue of sub-paragraph (2) above shall be allowed as a credit against the tax chargeable on the next capital distribution made, or treated by virtue of sub-paragraph (1) above as made, out of the property or, as the case may be, out of the part concerned.

• (4) Where the whole or part of the value mentioned in sub-paragraph (1) above is attributable to property—

• (a) which was added by the settlor after the end of the first of the ten years ending with the relevant anniversary ; or

• (b) in which an interest in possession subsisted throughout at least one of those ten years ;

the rate at which, under sub-paragraph (1) above, tax is chargeable on that value or that part of it shall be reduced by one-tenth for each of those ten years throughout which either the settled property did not include that property, or an interest in possession subsisted in that property.

• (5) For the purposes of this paragraph trustees of a settlement shall be regarded as not resident in the United Kingdom unless the general administration of the settlement is ordinarily carried on in the United Kingdom and the trustees or a majority of them (and, where there is more than one class of trustees, a majority of each class) are for the time being resident in the United Kingdom.

• (6) For the purposes of this paragraph a relevant anniversary, in relation to a settlement, is the end of the ten years beginning with the date of the transfer of value which is the relevant transfer in relation to the settlement (or would be the relevant transfer in relation to it if dispositions made or events happening at that date could be chargeable transfers and paragraph (c) of paragraph 11(2) above were omitted) and the end of every subsequent ten years ; but no date falling before 1st April 1980 is a relevant anniversary.

• (7) In this paragraph expressions defined for the purposes of paragraphs 6 to 10 above have the same meanings as in those paragraphs.

• (8) Section 51(2) of this Act does not apply to a charge to tax under this paragraph so as to make it the relevant transfer in relation to any settlement.

Tax credit for periodic charge

13

• (1) Subject to sub-paragraph (2) below, where tax is charged at a relevant anniversary on any capital distribution treated by virtue of paragraph 12(1) above as made out of any property, the effective rate at which that tax is charged (taking into account any reduction under paragraph 12(4) above) shall reduce the rate at which, apart from this paragraph, tax would be chargeable on any capital distribution made out of that property on or not later than twenty years after that relevant anniversary.

• (2) The amounts by which tax on any capital distribution is reduced under sub-paragraph (1) above by reason of any tax charged under paragraph 12(1) above shall not together exceed the amount of the tax so charged.

• (3) In this paragraph " relevant anniversary " has the same meaning as in paragraph 12 above.

Transitional relief for settlements made before 27th March 1974

14

• (1) In relation to a settlement made before 27th March 1974 paragraphs 6 to 12 above shall apply with the following modifications.

• (2) Subject to sub-paragraphs (3) to (5) below, the rate at which tax is chargeable on any capital distribution made before 1st April 1980 out of property comprised in the settlement (but not on any capital distribution which, under paragraph 9 above, is treated as made out of property comprised in a separate settlement made after 26th March 1974) shall be the following percentage of the rate at which it would be chargeable apart from this paragraph, that is to say—

• (a) 10 per cent, if the capital distribution is made before 1st April 1976 ;

• (b) 12 1/2 per cent, if it is made after 31st March 1976 but before 1st April 1977;

• (c) 15 per cent, if it is made after 31st March 1977 but before 1st April 1978 ;

• (d) 17 1/2 per cent, if it is made after 31st March 1978 but before 1st April 1979 ; and

• (e) 20 per cent, if it is made after 31st March 1979.

• (3) Where any capital distribution made after 31st March 1976 but before 1st April 1977 could not have been made except as the result of some proceedings before a court, this paragraph shall have effect in relation to it as if it had been made before 1st April 1976.

• (4) Sub-paragraph (2) above does not apply in relation to a capital distribution treated as made under paragraph 12(2) above.

• (5) Sub-paragraph (2) above does not apply—

• (a) in relation to a capital distribution treated as made under paragraph 6(2) above, unless the person becoming entitled as mentioned therein ; or

• (b) in relation to a capital distribution treated as made under paragraph 15(3) below, unless each of the beneficiaries referred to therein ; or

• (c) in relation to a distribution payment made for the benefit of any person, unless that person ;

is an individual who is domiciled in the United Kingdom at the time the capital distribution is made and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which it is made.

• (6) In this paragraph expressions defined for the purposes of paragraphs 6 to 10 above have the same meanings as in those paragraphs.

Accumulation and maintenance settlements

15

• (1) This paragraph applies to any settlement where—

• (a) one or more persons (in this paragraph referred to as beneficiaries) will, on or before attaining a specified age not exceeding twenty-five, become entitled to, or to an interest in possession in, the settled property or part of it; and

• (b) no interest in possession subsists in the settled property or part and the income from it is to be accumulated so far as not applied for the maintenance, education or benefit of a beneficiary.

• (2) Where this paragraph applies to a settlement—

• (a) a payment made to a beneficiary out of the settled property or part concerned shall not be a capital distribution and a capital distribution shall not be treated as made under paragraph 6(2) above on a beneficiary's becoming entitled to an interest in the property or part; and

• (b) no capital distribution shall be treated as made out of the property or part by virtue of paragraph 12 above at any time during the period for which the income is to be accumulated as mentioned in sub-paragraph (1)(b) above.

• (3) Where no interest in possession subsists in the property comprised in a settlement or some part of that property but the conditions stated in paragraphs (a) and (b) of sub-paragraph (1) above are not satisfied with respect to the property or part, then, if those conditions become satisfied with respect to the property or any part thereof a capital distribution shall be treated as being made out of the property or part and the amount of the distribution shall be taken to be equal to the value of the property with respect to which those conditions become satisfied.

• (4) Where the conditions stated in paragraphs (a) and (b) of sub-paragraph (1) above are satisfied at any time when there is only one beneficiary, they shall not be treated as ceasing to be satisfied on his death or on his attaining the specified age, if they would again be satisfied on the birth of another person.

• (5) In this paragraph expressions defined for the purposes of paragraphs 6 to 10 above have the same meanings as in those paragraphs.

Superannuation schemes

16

• (1) This paragraph applies to any scheme or fund mentioned in subsection (1) or subsection (2) of section 221 of the Taxes Act, to any fund to which section 218 of that Act applies, to any exempt approved scheme or statutory scheme as defined in Chapter II of Part II of the Finance Act 1970 and to any other sponsored superannuation scheme as defined in section 226(11) of the Taxes Act.

• (2) An interest in or under a fund or scheme to which this paragraph applies which comes to an end on the death of the person entitled to it shall be left out of account in determining for the purposes of this Part of this Act the value of his estate immediately before his death, if the interest—

• (a) is, or is a right to, a pension or annuity; and

• (b) is not an interest resulting (whether by virtue of the instrument establishing the fund or scheme or otherwise) from the application of any benefit provided under the fund or scheme otherwise than by way of a pension or annuity.

• (3) Paragraphs 3 and 4 above shall not apply in relation to an interest satisfying the conditions of paragraphs (a) and (b) of sub-paragraph (2) above ; and where any tax chargeable on a transfer of value is attributable to the value of such an interest, the persons liable for it shall not include the trustees of the scheme or fund but shall, where the transfer is made on the death of the person entitled to the interest, include his personal representatives.

• (4) In relation to an interest in or under a fund or scheme to which this paragraph applies, section 23(2) of this Act shall apply as if the words " other than settled property " were omitted (in both places).

• (5) Paragraphs 6 to 12 above shall not apply in relation to any property which is part of or held for the purposes of a fund or scheme to which this paragraph applies.

• (6) The reference in sub-paragraph (5) above to property which is part of or held for the purposes of a fund or scheme does not include a reference to a benefit which, having become payable under the fund or scheme, becomes comprised in a settlement; and where in such a case the settlement is made by a person other than the person entitled to the benefit, the settlement shall for the purposes of this Part of this Act be treated as made by the person so entitled.

Trusts for benefit of employees, etc.

17

• (1) Where settled property is held on trusts which, either indefinitely or until the end of a period (whether defined by a date or in some other way) do not permit any of the settled property to be applied otherwise than for the benefit of—

• (a) persons of a class defined by reference to employment in a particular trade, profession or undertaking or employment by, or office with, a body carrying on a trade, profession or undertaking; or

• (b) persons of a class defined by reference to marriage or relationship to, or dependence on, persons of a class defined as mentioned in paragraph (a) above ; or

• (c) charities;

then, subject to sub-paragraph (2) below, this paragraph applies to that settled property or, as the case may be, applies to it during that period.

• (2) Where any such class is defined by reference to employment by or office with a particular body this paragraph applies to the settled property only if the class comprises all or most of the persons employed by or holding office with that body.

• (3) Where this paragraph applies to any settled property—

• (a) the property shall be treated as comprised in one settlement, whether or not it would fall to be so treated apart from this paragraph; and

• (b) an interest in possession in any part of the settled property shall be disregarded for the purposes of this Schedule if that part is less than 5 per cent, of the whole ; and

• (c) subject to sub-paragraph (4) below, a payment out of the settled property shall not be a capital distribution and shall not be taken into account as a distribution payment; and

• (d) paragraph 7 above shall not apply to any capital distribution made out of the settled property ; and

• (e) paragraph 12 above shall apply subject to sub-paragraph (5) below, and paragraph 13 above shall not apply.

• (4) Sub-paragraph (3)(c) above does not apply in relation to any payment made for the benefit of a person who is, or is connected with.—

• (a) a person who has directly or indirectly provided any of the settled property otherwise than by additions not exceeding in value £1,000 in any one year ; or

• (b) in a case where the employment m question is employment by a close company, a person who is a participator in relation to that company and would, on a winding-up of the company, be entitled to not less than 5 per cent, of its assets.

• (5) Where this paragraph applies to any settled property, tax which would otherwise be chargeable at a relevant anniversary under paragraph 12(1) above shall be deferred until either a capital distribution is made or this paragraph ceases to apply to the settled property; and when any deferred tax becomes chargeable it shall be charged—

• (a) at the rate at which it would be chargeable if the relevant anniversary fell on the date on which the tax becomes chargeable ; and

• (b) on an amount determined in accordance with the following provisions of this paragraph.

• (6) Where any deferred tax becomes chargeable when this paragraph ceases to apply to the settled property it shall be chargeable on an amount equal to the current value of the settled property.

• (7) Where any of the deferred tax becomes chargeable when a capital distribution is made—

• (a) it shall be chargeable on an amount determined under sub-paragraph (8) below ; and

• (b) the amount of the tax shall reduce the amount on which tax is chargeable on that capital distribution (and if it exceeds that amount the excess shall reduce the amount on which tax is chargeable on the next capital distribution, and so on).

• (8) So far as any tax which would otherwise be chargeable on a relevant anniversary becomes chargeable when a capital distribution is made it shall be charged on an amount (in this sub-paragraph referred to as the first amount) equal to the proper proportion of the current value of the property out of which the capital distribution is made ; and where the capital distribution is made after the next relevant anniversary and, accordingly, more than one deferred tax becomes chargeable—

• (a) the second deferred tax shall be charged on the first amount less the amount of the first deferred tax; and

• (b) the third deferred tax (if any) shall be charged on the amount found under paragraph (a) above less the amount of the second deferred tax ;

and so on.

• (9) For the purposes of this paragraph—

• (a) the current value of any property is its value at the time any tax deferred under this paragraph becomes chargeable ; and

• (b) the proper proportion of the current value of any property out of which a capital distribution is made is the proportion which the amount on which tax is chargeable on the capital distribution bears to that current value ;

and in this paragraph " close company " and " participator " have the same meanings as in section 39 of this Act, " relevant anniversary " has the same meaning as in paragraph 12 above and " year " has the same meaning as in paragraph 2 of Schedule 6 to this Act.

Protective trusts

18

• (1) This paragraph applies to settled property held on trusts to the like effect as those specified in section 33(1) of the Trustee Act 1925 ; and in this paragraph " the principal beneficiary" and " the trust period " have the same meanings as in that section.

• (2) Where this paragraph applies to any settled property—

• (a) tax shall not be charged under paragraph 4(2) above on the coming to an end during the trust period of the principal beneficiary's interest in the property ; and

• (b) a distribution payment made out of the settled property for the benefit of the principal beneficiary shall not be a capital distribution.

• (3) Sub-paragraphs (5) to (9) of paragraph 17 above shall apply where this paragraph applies to any settled property as if the references to that paragraph were references to this paragraph and references to that paragraph ceasing to apply to the settled property included references to the coming to an end of the trust period.

Trusts for benefit of mentally disabled persons

19

• (1) This paragraph applies to settled property held on trusts under which, during the life of a mentally disabled person, no interest in possession in the settled property subsists and which secure that any of the settled property which is applied during his life is applied only or mainly for his benefit.

• (2) Where this paragraph applies to any settled property, then—

• (a) if the mentally disabled person is the settlor, neither the making of the settlement nor any addition made by him to the settled property shall be a chargeable transfer ; and

• (b) a distribution payment made out of the settled property for the benefit of the mentally disabled person shall not be a capital distribution.

• (3) Sub-paragraphs (5) to (9) of paragraph 17 above shall apply where this paragraph applies to any settled property as if the references to that paragraph were references to this paragraph and references to that paragraph ceasing to apply to the settled property included references to the death of the mentally disabled person.

• (4) In this paragraph " mentally disabled person " means a person who by reason of mental disorder within the meaning of the Mental Health Act 1959 is incapable of administering his property or managing his affairs.

Charitable trusts

20

Paragraphs 6 to 12 above do not apply in relation to settled property held for charitable purposes only.

Compensation funds

21

Paragraphs 6 to 12 above do not apply in relation to any 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 incurred or likely to be incurred through the default or alleged default of persons carrying on the trade or profession or of their agents or servants.

Administration period

22

• (1) Where a person would have been entitled to any interest in possession in the whole or part of the residue of the estate of a deceased person had the administration of that estate been completed, the same consequences shall follow under this Schedule as if he had become entitled to an interest in possesion in the unadministered estate and in the property (if any) representing ascertained residue, or in a corresponding part of it, on the date as from which the whole or part of the income of the residue would have been attributable to his interest had the residue been ascertained immediately after the death of the deceased person.

• (2) In this paragraph—

• (a) " unadministered estate " means all the property for the time being held by personal representatives as such, excluding property devolving on them otherwise than as assets for the payment of debts and excluding property that is the subject of a specific disposition, and making due allowance for outstanding charges on residue and for any adjustments between capital and income remaining to be made in due course of administration;

• (b) " ascertained residue " means property which, having ceased to be held by the personal representatives as such, is held as part of the residue ;

• (c) " charges on residue ", and " specific disposition " have the same meanings as in Part )(V of the Taxes Act and the reference to the completion of the administration of an estate shall be construed as if contained in that Part.

Sales and mortgages of reversionary interests

23

• (1) Where a reversionary interest in settled property was before 27th March 1974 sold or mortgaged for full consideration in money or money's worth, no greater amount of tax shall be payable by the purchaser or mortgagee when the interest falls into possession than the amounts of estate duty that would have been payable by him if none of the provisions of this Act had been passed; and any tax which, by virtue of this paragraph, is not payable by the mortgagee but which is payable by the mortgagor shall rank as a charge subsequent to that of the mortgagee.

• (2) Where the interest was sold or mortgaged to a close company in relation to which the person entitled to the interest was a participator, sub-paragraph (1) above applies only to the extent that other persons had rights and interests in the company.

• (3) Sub-paragraph (2) above shall be construed as if contained in section 39 of this Act.

Close companies

24

• (1) In relation to a person who is a participator in his capacity as trustee of a settlement, subsection (1) of section 39 of this Act shall not apply ; and

• (a) the references in that section to subsection (1) thereof shall have effect as references to sub-paragraph (2) below ; and

• (b) in relation to tax chargeable by virtue of sub-paragraph (2) below, subsection (4) of that section shall apply with the necessary modifications.

• (2) Where any part of the value transferred by a close company is apportioned to a trustee of a settlement under section 39 of this Act, then—

• (a) if an interest in possession subsists in the settled property a part of that interest corresponding to such part of the property as is of a value equal to the part so apportioned less the amount specified in sub-paragraph (3) below shall be treated for the purposes of this Schedule as having come to an end on the making of the transfer ; and

• (b) if no interest in possession subsists in the settled property, the part of the value so apportioned less the amount specified in sub-paragraph (3) below shall be treated as a capital distribution made at the time of the transfer ;

and where an interest in possession subsists in part only of the settled property paragraphs (a) and (b) above shall apply with the necessary adjustments of the values and amounts referred to therein.

• (3) The amount referred to in paragraphs (a) and (b) of sub-paragraph (2) above is the amount (if any) by which the value of the settled property is more than it would be apart from the company's transfer, leaving out of account the value of any rights or interests in the company.

• (4) Nothing in subsection (4) of section 39 of this Act shall be taken to prevent a transfer of value assumed to have been made by a person falling under sub-section (3)(a) of that section from being a relevant transfer as defined in paragraph 11 above.

• (5) Where a close company is entitled to an interest in possession in settled property the persons who are participators in relation to the company shall be treated for the purposes of this Schedule as being the persons beneficially entitled to that interest according to their respective rights and interests in the company.

• (6) In this paragraph expressions defined in section 39 of this Act have the same meanings as in that section.

SCHEDULE 6

PART I — Description

Transfers between spouses

1

• (1) Subject to the provisions of Part II of this Schedule and the following provisions of this paragraph, a transfer of value is an exempt transfer to the extent that the value of the estate of the transferor's spouse is increased.

• (2) If, immediately before the transfer, the transferor but not the transferor's spouse is domiciled in the United Kingdom the transfer is exempt to the extent only that the increase in the value of the spouse's estate does not exceed £15,000 less any increase previously taken into account for the purposes of the exemption conferred by this paragraph.

• (3) Where the transfer is made on death and the whole or part of the value of any property which devolved on or was given to the spouse (within the meaning of section 121 of and Schedule 26 to the Finance Act 1972) would have been included under section 22(5) of this Act had it not fallen to be disregarded under section 121 of that Act, the value that would have been so included shall reduce the £15,000 mentioned in sub-paragraph (2) above.

• (4) In its application to Northern Ireland, sub-paragraph (3) above shall have effect as if for the references to section 121 of and Schedule 26 to the Finance Act 1972 there were substituted references to Article 5 of and Schedule 2 to the Finance (Northern Ireland) Order 1972.

Values not exceeding £1,000

2

• (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 payable) do not exceed £1,000.

• (2) Where those values (if any) fall short of £1,000, the amount by which they so fall short shall, in relation to the next following year, be added to the £1,000 mentioned in sub-paragraph (1) above ; and where they exceed £1,000 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.

• (3) In this paragraph " year " means the period beginning with 27th March 1974 and ending with 5th April 1974, and any subsequent period of twelve months ending with 5th April.

3

• (1) In relation to the period beginning with 27th March 1974 and ending with 5th April 1974 and the period of twelve months ending with 5th April 1975, paragraph 2 above shall have effect as if for the references to £1,000 there were substituted references to whichever of the following is the greater—

• (a) £1,000, and

• (b) the aggregate value of gifts made by the transferor in that period and qualifying for small gifts relief from estate duty.

• (2) For the purposes of this paragraph a gift qualifying for small gifts relief from estate duty is a gift which would by virtue of section 59(2) of the Finance (1909-10) Act 1910 or section 33 of the Finance Act 1949 or section 6 of the Finance Act (Northern Ireland) 1949 have been excluded from the property passing on the donor's death for the purposes of estate duty if he had died immediately after making the gift.

Small gifts to same person

4

• (1) Transfers of value made by a transferor in any one year by outright gifts to any one person are exempt to the extent that the values transferred by them (calculated as values on which no tax is chargeable) do not exceed £100.

• (2) In this paragraph " year " has the same meaning as in paragraph 2 above.

Normal expenditure out of income

5

• (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 paragraph 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 the purchase of the annuity and 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) Where a purchased life annuity (within the meaning of section 230 of the Taxes Act) was purchased after 12th November 1974 then, in relation to transfers of value made after 5th April 1975, so much of the annuity as is, for the purposes of the provisions of the Tax Acts relating to income tax on annuities and other annual payments, treated as the capital element contained in the annuity, shall not be regarded as part of the transferor's income for the purposes of this paragraph.

Gifts in consideration of marriage

6

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

• (a) in the case of gifts within sub-paragraph (2) below by a parent of a party to the marriage, £5,000 ;

• (b) in the case of other gifts within sub-paragraph (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 sub-paragraph 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, and either the gift is an outright gift to the other party to the marriage or the property comprised in the gift is settled by the gift, or

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

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

• (3) A disposition shall not be treated for the purposes of this paragraph as a gift made in consideration of marriage—

• (a) in the case of an outright gift, if or in so far as it is a gift to a person other than a party to the marriage;

• (b) in the case of any other disposition, if the persons who are or may become entitled to any benefit under the disposition include any person other than—

• (i) the parties to the marriage, issue of the marriage, or a wife or husband of any such issue ;

• (ii) persons becoming entitled on the failure of trusts for any such issue under which trust property would (subject only to any power of appointment to a person falling within sub-paragraph (i) or (iii) of this paragraph) 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;

• (iii) a subsequent wife or husband of a party to the marriage, or any issue, or the wife or husband of any issue, of a subsequent marriage of either party;

• (iv) persons becoming entitled under such trusts, subsisting under the law of England or of Northern Ireland, as are specified in section 33(1) of the Trustee Act 1925 or section 34(1) of the Trustee Act (Northern Ireland) 1958 (protective trusts), the principal beneficiary being a person falling within sub-paragraph (i) or (iii) of this paragraph, or under such trusts, modified by the enlargement, as respects any period during which there is no such issue 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);

• (v) persons becoming entitled under trusts subsisting under the law of Scotland and corresponding with such trusts as are mentioned in sub-paragraph (iv) above ;

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

• (4) References in sub-paragraph (3) above to issue shall apply as if any person legitimated by a marriage, or adopted by the husband and wife jointly, were included among the issue of that marriage.

7

In relation to marriages before the passing of this Act paragraph 6 above shall have effect with the substitution of a reference to £5,000 for the reference in sub-paragraph (1) to £2,500.

Interpretation of paragraphs 2 to 7

8

Section 51(2) of this Act does not apply to the interpretation of paragraphs 2 to 7 above.

Transfers in course of trade, etc.

9

A transfer of value made in the carrying on of a trade, profession or vocation is an exempt transfer if it is allowable as a deduction in computing the profits or gains of that trade, profession or vocation for the purposes of income tax (or would be so allowable if those profits or gains were sufficient and fell to be so computed).

Gifts to charities

10

• (1) Subject to the provisions of Part II of this Schedule, transfers of value are exempt to the extent that the values transferred by them—

• (a) are attributable to property which is given to charities ; and

• (b) so far as made on or within one year of the death of the transferor, do not exceed £100,000.

• (2) Notwithstanding anything in paragraph 6 of Schedule 5 to this Act, where property is given to a charity by the making of a distribution payment within the meaning of that paragraph, the distribution payment is not a capital distribution for the purposes of that Schedule.

• (3) For the purposes of this paragraph property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only.

• (4) Where, in the case of a transfer of value made on death, the whole or part of the value of any property which was given (within the meaning of section 121 of and Schedule 26 to the Finance Act 1972) to charities would have been included under section 22(5) of this Act had it not fallen to be disregarded under section 121 of that Act, the value that would have been so included shall reduce the £100,000 mentioned in sub-paragraph (1) above.

• (5) In its application to Northern Ireland, sub-paragraph (4) above shall have effect as if for the references to section 121 of and Schedule 26 to the Finance Act 1972 there were substituted references to Article 5 of and Schedule 2 to the Finance (Northern Ireland) Order 1972.

Gifts to political parties

11

• (1) Subject to the provisions of Part II of this Schedule, 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 paragraph ; and

• (b) so far as made on or within one year of the death of the transferor, do not exceed £100,000.

• (2) A political party qualifies for exemption under this paragraph 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 one hundred and fifty thousand votes were given to candidates who were members of that party.

Gifts for national purposes etc.

12

Subject to the provisions of Part II of this Schedule, 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—

• The National Gallery.

• The British Museum.

• The Royal Scottish Museum.

• The National Museum of Wales.

• The Ulster Museum.

• Any other similar national institution which exists wholly or mainly for the purpose of preserving for the public benefit a collection of scientific, historic or artistic interest and which is approved for the purposes of this paragraph by the Treasury.

• Any museum or art gallery in the United Kingdom which exists wholly or mainly for that purpose and is maintained by a local authority or university in the United Kingdom.

• Any library the main function of which is to serve the needs of teaching and research at a university in the United Kingdom.

• The National Trust for Places of Historic Interest or Natural Beauty.

• The National Trust for Scotland for Places of Historic Interest or Natural Beauty.

• The National Art Collections Fund.

• The Friends of the National Libraries.

• The Historic Churches Preservation Trust.

• The Nature Conservancy Council.

• Any local authority.

• Any Government department (including the National Debt Commissioners).

• Any university or university college in the United Kingdom.

Gifts for public benefit

13

• (1) Subject to the provisions of Part II of this Schedule, a transfer of value is an exempt transfer to the extent that—

• (a) the value transferred by it is attributable to property within sub-paragraph (2) below which becomes property of a body not established or conducted for profit; and

• (b) the Treasury so direct (whether before or after the time of the transfer).

• (2) Property is within this sub-paragraph if it is—

• (a) land which in the opinion of the Treasury is of outstanding scenic or historic or scientific interest;

• (b) a 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 or aesthetic interest and the cost of preserving it;

• (c) land used as the grounds of a building within paragraph (b) above;

• (d) an object which at the time of the transfer is ordinarily kept in, and which is given with, a building within paragraph (b) above;

• (e) property given as a source of income for the upkeep of, property within any of the paragraphs of this sub-paragraph ;

• (f) a picture, print, book, manuscript, work of art or scientific collection which in the opinion of the Treasury is of national or historic or scientific interest.

• (3) The Treasury shall not give a direction under sub-paragraph (1) above—

• (a) in relation to land within sub-paragraph (2)(a) above, unless in their opinion the body whose property it becomes is an appropriate one to be responsible for the preservation of its character;

• (b) in relation to property within sub-paragraph (2)(b) or (f) above, unless in their opinion the body whose property it becomes is an appropriate one to be responsible for its preservation ;

• (c) in relation to property within sub-paragraph (2)(e) above, if or to the extent that, in the opinion of the Treasury, the property will produce more income than is needed (with a reasonable margin) for the upkeep of the other property in question.

• (4) Before giving a direction under sub-paragraph (1) above in relation to any property (other than property within sub-paragraph (2)(e) above) the Treasury may require such undertakings to be entered into, including undertakings restricting the use or disposal of the property, as they think appropriate for securing the preservation of the property or its character and reasonable access to it for the public.

• (5) Any undertaking entered into by virtue of sub-paragraph (4) above may be varied from time to time by agreement between the Treasury and the person bound by the undertaking, and the Treasury may require further undertakings to be entered into as a condition for agreeing to any such variation or consenting to anything for which their consent is required by any undertaking.

• (6) The obligations imposed by any undertaking entered into by virtue of this paragraph shall be enforceable for the public benefit by injunction (or, in Scotland, by interdict or by petition under section 91 of the Court of Session Act 1868), and any purported disposition of property in contravention of an undertaking shall be void, as if the obligation had been imposed by Act of Parliament.

• (7) Property is given with other property for the purposes of this paragraph if the value transferred by a transfer of value is attributable to both and both become the property of the same body.

• (8) In this paragraph " national interest" includes interest within any part of the United Kingdom.

Gifts made before 10th December 1974 and not relevant to estate duty

14

A transfer of value made by any person before 10th December 1974 is exempt to the extent that the value transferred thereby is attributable to the value of any property which, if the transferor had died immediately after the transfer, would not have been treated for the purposes of estate duty as passing on his death.

PART II — Exceptions

15

• (1) Paragraphs 1 and 10 to 13 above do not apply in relation to any property if the testamentary or other disposition by which it is given takes effect on the termination after the transfer of value of any interest or period ; but paragraph 1 above is not excluded by virtue of this sub-paragraph by reason only that the property is given to a spouse only if he survives the other spouse for a specified period.

• (2) Paragraphs 1 and 10 to 13 above do not apply in relation to any property if the testamentary or other disposition by which it is given depends on a condition which is not satisfied within twelve months after the transfer.

• (3) Paragraphs 10 to 13 above do not apply in relation to any property if—

• (a) the testamentary or other disposition by which it is given is defeasible ; or

• (b) the property is an interest in other property and that interest is less than the donor's or the property is given subject to an interest reserved or created by the donor or is given for a limited period ; or

• (c) the property or any part of it may become applicable for purposes other than charitable purposes or those of a body mentioned in paragraph 11, 12 or 13 above ;

except that paragraph (b) above shall not prevent paragraph 12 above from applying in relation to property consisting of the benefit of an agreement restricting the use of land.

• (4) For the purposes of sub-paragraph (3) above—

• (a) any question whether any interest is less than the donor's or whether property is given subject to an interest shall be decided as at a time twelve months after the transfer of value ; and

• (b) any disposition which has not been defeated at that time 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.

• (5) For the purposes of this paragraph 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.

PART III — Supplementary Provisions

Preliminary

16

Where any one or more of paragraphs 1 and 10 to 13 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 paragraphs 17 to 21 below ; and

• (b) the relief resulting from those paragraphs shall, notwithstanding the terms of any disposition, be allocated in accordance with paragraph 22 below.

Abatement not attributable to tax

17

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 Part of this Schedule as so abated.

Abatement for tax—specific gifts

18

Where the value attributable, in accordance with paragraph 19 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.

Attribution of value to specific gifts

19

• (1) Such part of the value transferred shall be attributable to a specific gift as corresponds to the value of the gift; but if or to the extent that the gift—

• (a) is not a gift with respect to which the transfer is exempt or is outside the limit up to which the transfer is exempt; and

• (b) does not bear its own tax ;

the amount corresponding to the value of the gift shall be taken to be such amount as, after deduction of tax at the assumed rate specified in sub-paragraph (3) below, would be equal to the value of the gift.

• (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 the gifts in proportion to their values.

• (3) For the purposes of this paragraph—

• (a) the assumed rate is the rate found by dividing the assumed amount of tax by the value transferred ; and

• (b) the assumed amount of tax is the amount of tax found by applying the rate or rates applicable under section 37 of this Act to the value transferred without regard to paragraphs 1 and 10 to 13 above.

• (4) For the purposes of this paragraph, any liability of the transferor which is not to be taken into account under paragraph 1(3) of Schedule 10 to this Act shall be treated as a specific gift.

Attribution of value to residuary gifts

20

Such part only of the value transferred shall be attributed to gifts of residue or shares in residue as is not attributed under paragraph 19 above to specific gifts.

Gifts made separately out of different funds

21

Where gifts taking effect on a transfer of value take effect separately out of different funds the preceding provisions of this Part of this Schedule 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.

Allocation of relief

22

• (1) The reduction referred to in the following provisions of this paragraph is the reduction in tax resulting from paragraphs 1 and 10 to 13 above, after allowing for the reduction in the effective rate at which tax is chargeable.

• (2) The reduction shall reduce tax attributable to gifts bearing their own tax before reducing tax attributable to other gifts and, subject thereto, shall reduce the tax attributable to different gifts in proportion to their value.

• (3) Subject to sub-paragraph (4) below, the reduction shall reduce only tax falling on a gift with respect to which the transfer of value is exempt and, if it is so exempt only up to a limit, shall not reduce tax falling on so much of the gift as is outside the limit; and in particular, where such a gift is a gift of a share in residue or in any property, the reduction shall not reduce the tax falling on so much of the residue or that property as is not such a gift or is outside that limit.

• (4) The reduction may reduce tax attributable to specific gifts with regard to which the transfer is exempt or to so much of such gifts as is within the limit up to which it is exempt, notwithstanding that it falls on residue.

Interpretation

23

• (1) In this Part of this Schedule—

• " gift ", in relation to any transfer of value, means the benefit of any disposition or rule of law by which, on the making of the transfer, any property becomes (or would but for any abatement become) the property of any person or applicable for any purpose and " given " shall be construed accordingly;

• " specific gift " means any gift other than a gift of residue or of a share in residue.

• (2) For the purposes of this Part of this Schedule 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.

SCHEDULES 9,10

Death on active service, etc.

1

• (1) Section 22 of this Act shall not apply in relation to the death of a person in whose case it is certified by the Defence Council or the Secretary of State—

• (a) that he died from a wound inflicted, accident occurring or disease contracted at a time when the conditions specified in sub-paragraph (2) below were satisfied, or

• (b) that he died from a disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease during a period when those conditions were satisfied.

• (2) The conditions referred to in sub-paragraph (1) above are that the deceased was a member of any of the armed forces of the Crown or was employed as mentioned in sub-paragraph (3) below or (not being a member of any of those forces and not being so employed) was subject to the law governing any of those forces by reason of association with or accompanying any body of those forces and (in any case) was either—

• (a) on active service against an enemy, or

• (b) on other service of a warlike nature or which in the opinion of the Treasury involved the same risks as service of a warlike nature.

• (3) The employment referred to in sub-paragraph (2) above is employment as a person of any of the following descriptions, namely—

• (a) member of Queen Alexandra's Royal Naval Nursing Service or any reserve thereof ;

• (b) member of Queen Alexandra's Imperial Military Nursing Service or any reserve thereof;

• (c) member of the Territorial Army Nursing Service;

• (d) member of the Women's Royal Naval Service or any reserve thereof;

• (e) woman medical or dental practitioner serving in the Royal Navy or any naval reserve ; (f) member of the Auxiliary Territorial Service ;

• (g) woman employed with the Royal Army Medical Corps or the Royal Army Dental Corps with relative rank as an officer ;

• (h) member of the Women's Auxiliary Air Force ;

• (i) woman employed by the Medical Branch or the Dental Branch of the Royal Air Force with relative rank as an officer;

• (j) member of the Voluntary Aid Detachments employed under the Admiralty, Army Council, Air Council, or Defence Council.

Cash options under approved annuity schemes

2

Where under a contract or trust scheme approved by the Board under section 226 or 226A of the Taxes Act or (before the commencement of that Act) under section 22 of the Finance Act 1956 (retirement annuities) an annuity becomes payable on a person's death to a widow, widower or dependant of that person, and under the terms of the contract or scheme a sum of money might at his option have become payable instead to his personal representatives, he shall not, by virtue of section 23(2) of this Act, be treated as having been beneficially entitled to that sum.

Government securities free of tax while in foreign ownership

3

• (1) Where securities have been issued by the Treasury subject to a condition authorised by section 22 of the Finance (No. 2) Act 1931 (or section 47 of the Finance (No. 2) Act 1915) for exemption from taxation so long as the securities are in the beneficial ownership of persons neither domiciled nor ordinarily resident in the United Kingdom the securities are excluded property—

• (a) if they are not settled property and are in the beneficial ownership of such a person ; or

• (b) if they are settled property and such a person is beneficially entitled to an interest in possession in them.

• (2) If the securities are settled property and no interest in possession subsists in them the condition of sub-paragraph (1)(b) above shall be treated as satisfied if 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 might become beneficially entitled to an interest in possession in it are persons neither domiciled nor ordinarily resident in the United Kingdom.

• (3) Section 45 of this Act does not apply for the purposes of this paragraph.

Overseas pensions

4

• (1) In determining for the purposes of this Part of this Act the value of a person's estate immediately before his death there shall be left out of account any pension payable under the regulations or rules relating to any fund vested in Commissioners under section 273 of the Government of India Act 1935 or to any fund administered under a scheme made under section 2 of the Overseas Pensions Act 1973 which is certified by the Secretary of State for the purpose of this paragraph to correspond to an Order in Council under subsection (1) of the said section 273.

• (2) For the purposes of tax—

• (a) a pension paid under the authority of a scheme made under section 2 of the Overseas Pensions Act 1973 which is constituted by the Pensions (India, Pakistan and Burma) Act 1955 or is certified by the Secretary of State for the purposes of this paragraph to correspond to the said Act of 1955 shall be treated as if it had been paid by the Government of India or the Government of Pakistan (according as the arrangements in pursuance of which the pension was first paid under the said Act of 1955 were made with the one or the other Government);

• (b) a pension paid out of any fund established in the United Kingdom by the Government of any country which is, or forms part of, a colony, protectorate, protected state or United Kingdom trust territory shall, if the fund was established for the sole purpose of providing pensions, whether contributory or not, payable in respect of service under the Government, be treated as if it had been paid by the Government by which the fund was established ;

• (c) a pension paid out of the Central African Pension Fund established by section 24 of the Federation of Rhodesia and Nyasaland (Dissolution) Order in Council 1963 shall be treated as if it had been paid by the Government of a territory outside the United Kingdom ; and

• (d) so much of any pension paid to or in respect of any person under—

• (i) the scheme which by virtue of subsection (3) of section 2 of the Overseas Pensions Act 1973 is constituted under that section by section 2 or subsection (2) of section 4 of the Overseas Service Act 1958 ; or

• (ii) such other scheme made under section 2 of the said Act of 1973 as is certified by the Secretary of State for the purposes of the Taxes Act to correspond to section 2 or subsection (2) of section 4 of the said Act of 1958;

as is certified by the Secretary of State to be attributable to service under the Government of an overseas territory shall be treated as if it had been paid by the Government of that territory.

• (3) Sub-paragraph (1) above shall be construed as if contained in section 273 of the Government of India Act 1935 ; and for the purposes of sub-paragraph (2) above—

• (a) "pension" includes a gratuity and any sum payable on or in respect of death, and a return of contributions with or without interest thereon or any other addition thereto ;

• (b) " United Kingdom trust territory " means a territory administered by the Government of the United Kingdom under the trusteeship system of the United Nations ;

• (c) " overseas territory " means any country or territory outside the United Kingdom;

• (d) references to the Government of any such country or territory as is mentioned in paragraph (b) or (d) of that sub-paragraph include a Government constituted for two or more such countries or territories and any authority established for the purpose of providing or administering services which are common to, or relate to matters of common interest to, two or more such countries or territories.

• (4) If, by reason of Her Majesty's Government in the United Kingdom having assumed responsibility for a pension, allowance or gratuity within the meaning of section 1 of the Overseas Pensions Act 1973, payments in respect of it are made under that section, this paragraph shall apply in relation to the pension, allowance or gratuity, exclusive of so much (if any) of it as is paid by virtue of the application to it of any provisions of the Pensions (Increase) Act 1971 or any enactment repealed by that Act, as if it continued to be paid by the Government or other body or fund which had responsibility for it before that responsibility was assumed by Her Majesty's Government in the United Kingdom.

Savings by persons domiciled in Channel Islands or Isle of Man

5

• (1) 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) deposits with a savings bank with respect to which a certificate of the Treasury under section 414 of the Taxes Act is in force;