Finance Act 1975

• (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;

• (f) any certified contractual savings scheme within the meaning of section 415 of the Taxes Act;

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

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

Visiting forces and staff of allied headquarters

6

• (1) The emoluments paid by the Government of any designated country to a member of a visiting force of that country, not being a citizen of the United Kingdom and colonies, are excluded property.

• (2) Any tangible movable property the presence of which in the United Kingdom is due solely to the presence in the United Kingdom of any such member of a visiting force as is referred to in sub-paragraph (1) above while serving as a member of the force is excluded property.

• (3) A period during which any such member of a visiting force as is referred to in sub-paragraph (1) above is in the United Kingdom by reason solely of his being such a member shall not be treated for the purposes of tax as a period of residence in the United Kingdom or as creating a change of his residence or domicile.

• (4) In the foregoing provisions of this paragraph, references to a visiting force shall apply to a civilian component of a visiting force as they apply to the force itself, and those provisions shall be construed as one with Part I of the Visiting Forces Act 1952, but so that for the purposes of this paragraph references to a designated country shall be substituted in that Act for references to a country to which a provision of that Act applies.

• (5) For the purpose of conferring on persons attached to any designated allied headquarters the like benefits as are conferred by sub-paragraphs (1) to (3) above on members of a visiting force or civilian component, any members of the armed forces of a designated country shall, while attached to any such headquarters, be deemed to constitute a visiting force of that country, and there shall be a corresponding extension of the class of persons who may be treated as members of a civilian component of such a visiting force.

• (6) In the case of persons of any category for the time being agreed between Her Majesty's Government in the United Kingdom and the other members of the North Atlantic Council, employment by a designated allied headquarters shall be treated for the purposes of sub-paragraphs (2) and (3) above as if it were service as a member of a visiting force of a designated country.

• (7) For the purposes of this paragraph—

• " allied headquarters " means any international military headquarters established under the North Atlantic Council;

• " designated " means designated for the purpose in question by or under any Order in Council made for giving effect to any international agreement.

• (8) Any Order in Council under this paragraph may be varied or revoked by a subsequent Order in Council.

• (9) Any Order in Council made under section 73 of the Finance Act 1960 which is in force immediately before the passing of this Act shall have effect for the purposes of this paragraph as if it had also been made under this paragraph, and may be varied or revoked accordingly.

Double taxation relief

7

• (1) If Her Majesty by Order in Council declares that arrangements specified in the Order have been made with the government of any territory outside the United Kingdom with a view to affording relief from double taxation in relation to capital transfer tax payable under the laws of the United Kingdom and any tax imposed under the laws of that territory which is of a similar character or is chargeable on or by reference to death or gifts inter vivos, and that it is expedient that those arrangements should have effect, the arrangements shall, notwithstanding anything in this Part of this Act, have effect so far as they provide for relief from capital transfer tax, or for determining the place where any property is to be treated as situated for the purposes of the tax.

• (2) Any arrangements to which effect is given under this paragraph may include provision for relief in cases occurring before the making of the arrangements and provisions as to property which is not itself subject to double taxation.

• (3) Any Order in Council made under this paragraph may be revoked by a subsequent Order in Council, and any such revoking Order may contain such transitional provisions as appear to Her Majesty to be necessary or expedient.

• (4) An Order under this paragraph shall not be submitted to Her Majesty in Council unless a draft of it has been laid before the House of Commons and approved by it by resolution.

• (5) Where any arrangements have effect by virtue of this paragraph, no obligation as to secrecy shall prevent the Board or an authorised officer of the Board from disclosing to any authorised officer of the government with which the arrangements are made such information as is required to be disclosed under the arrangements.

• (6) Where, under any Order in Council made or having effect as made under section 54 of the Finance (No. 2) Act 1945 or section 2 of the Finance Act (Northern Ireland) 1946 and having effect immediately before the passing of this Act, arrangements with the government of any territory outside the United Kingdom are specified, the Order shall, notwithstanding the repeal of that section, remain in force and have effect as if any provision made by those arrangements in relation to estate duty extended to capital transfer tax chargeable by virtue of section 22 of this Act, and nothing in section 45 of this Act shall be taken to affect the interpretation of any such provision ; but the Order may be amended or revoked by an Order in Council made under this paragraph.

8

Where the Board are satisfied that in any territory outside the United Kingdom any amount of tax chargeable by reason of any disposition or other event is attributable to the value of any property situated in that territory, then, if that tax is of a character similar to that of capital transfer tax or is chargeable on or by reference to death or gifts inter vivos and any capital transfer tax chargeable by reference to the same disposition or other event is also attributable to the value of that property, they shall allow a sum equal to the first-mentioned amount as a credit against that capital transfer tax.

SCHEDULE 8

Part I

Nature of relief

1

• (1) Where the value transferred by a chargeable transfer is determined by reference to the value of agricultural property in the United Kingdom and the conditions stated in paragraph 3 below are satisfied, then, if—

• (a) the value transferred would be reduced if computed in accordance with paragraph 2 below ; and

• (b) a person liable to pay the whole or part of the tax on the value transferred makes a claim in that behalf to the Board within two years of the transfer or such longer time as the Board may allow;

the value transferred shall be so computed and tax shall be chargeable accordingly, but subject to the limit imposed by paragraph 5 below.

• (2) The conditions stated in paragraph 3 below shall be deemed to be satisfied with respect to a transfer of value (in this sub-paragraph referred to as the current transfer) if—

• (a) not more than two years before the current transfer there was (or would have been had this Act then been in force) a transfer of value ; and

• (b) the value transferred by the earlier transfer was or would have been determined by reference to the value of the same agricultural property as in the case of the current transfer; and

• (c) the conditions stated in paragraph 3 below were or would have been satisfied with respect to the earlier transfer; and

• (d) the agricultural property was, at the time of the current transfer, occupied for the purposes of agriculture by the transferor or by the personal representatives of the person who was or would have been the transferor in relation to the earlier transfer.

• (3) In the following provisions of this Part of this Schedule " the unreduced value ", in relation to a chargeable transfer, means the value transferred, calculated before the reduction and as if no tax were chargeable on it.

2

Where the value transferred is to be computed in accordance with this paragraph there shall first be ascertained such part of the unreduced value as is attributable to the agricultural value of the agricultural property (in this Part of this Schedule referred to as the part eligible for relief) and the value transferred shall then be computed as if the part eligible for relief were reduced by applying to it the fraction of which—

• (a) the numerator is the multiplied rental value of the agricultural property; and

• (b) the denominator is the agricultural value of the agricultural property.

Conditions for relief

3

• (1) The conditions referred to in paragraph 1(1) above are—

• (a) that the transferor was, in not less than five of the seven years ending with 5th April immediately preceding the transfer, wholly or mainly engaged in the United Kingdom in any of the capacities mentioned in sub-paragraph (2) below (or partly in one of them and partly in another or others); and

• (b) subject to paragraph 4 below, that the agricultural property was at the time of the transfer occupied by him for the purposes of agriculture and either was so occupied by him throughout the two years immediately preceding the transfer or replaced other agricultural property and was so occupied by him for a period which, when added to any period during which he so occupied the replaced property, comprised at least two years in the five years immediately preceding the transfer.

• (2) The capacities referred to in sub-paragraph (1) above are those of—

• (a) a person who carries on farming as a trade either alone or in partnership;

• (b) a person employed in farming carried on as a trade by another person;

• (c) a director of a company carrying on farming in the United Kingdom as its main activity ; or

• (d) a person undergoing full-time education.

• (3) Where not less than 75 per cent, of the transferor's relevant income was immediately derived by him from his engagement in agriculture in the United Kingdom, the condition in sub-paragraph (1)(a) above shall be taken to be satisfied ; and for this purpose—

• (a) "relevant income" is the aggregate of income in any five of the last seven years of assessment immediately preceding the transfer which is earned income for the purposes of income tax other than income from a pension, superannuation or other allowance, deferred pay or compensation for loss of office ; and

• (b) the question what was the transferor's income shall be determined without regard to section 37 of the Taxes Act (aggregation of wife's income).

• (4) Where the agricultural property had, at some time before the transfer, been occupied by the transferor for the purposes of agriculture and was, throughout the period between that time and the transfer, so occupied by a member of his family, the conditions in sub-paragraph (1) above shall be treated as satisfied if they would have been satisfied had the transfer occurred at that time.

• (5) Where the condition in sub-paragraph (1)(b) above is satisfied but the agricultural property which was occupied by the transferor at the time of the transfer was not occupied by him for the purposes of agriculture throughout the two years immediately preceding the transfer, then if the agricultural property which it replaced had, at the time when it ceased to be so occupied, a lower agricultural value than the first-mentioned property had at the time when it was first so occupied, the part eligible for relief shall be ascertained as if the agricultural value of the first-mentioned property were reduced by applying to it the fraction of which—

• (a) the numerator is that lower agricultural value ; and

• (b) the denominator is the agricultural value which the first-mentioned property then had.

• (6) For the purposes of sub-paragraph (1) above, where the transferor became entitled to the agricultural property on the death of another person—

• (a) his occupation of the agricultural property shall be deemed to have begun on the death of that person ; and

• (b) if that other person was the transferor's spouse and the condition stated in sub-paragraph (1)(a) above was at the time of the death satisfied with respect to the spouse, it shall be treated as having then been satisfied with respect to the transferor.

• (7) For the purposes of sub-paragraph (1) above occupation by a company which is controlled by the transferor shall be treated as occupation by the transferor; and for this purpose the question whether any company is controlled by the transferor shall be determined as for the purposes of paragraph 13 of Schedule 4 to this Act.