Inheritance Tax Act 1984

PART I — GENERAL

Main charges and definitions

Charge on transfers

1

Inheritance tax shall be charged on the value transferred by a chargeable transfer.

Chargeable transfers and exempt transfers

2

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

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

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

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

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

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3

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

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

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

• (a) of another person's estate, or

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

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

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

Transfers on death

4

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

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

Meaning of estate

5

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

• (a) the estate of a person—

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

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

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

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

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

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

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

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

• (e) the interest in possession is—

• (i) not an immediate post-death interest,

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

• (iii) not a transitional serial interest.

• (1B) An interest in possession falls within this subsection if—

• (a) the person became beneficially entitled to it on or after 9 December 2009 by virtue of a disposition that was prevented from being a transfer of value by section 10 (no gratuitous benefit), and

• (b) the person—

• (i) has been a long-term UK resident at any time on or after 6 April 2025 while beneficially entitled to it, or

• (ii) became beneficially entitled to it at a time before 6 April 2025 while domiciled in the United Kingdom.

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

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

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

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

Excluded property

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• (1) Property situated outside the United Kingdom is excluded property if the person beneficially entitled to it is an individual who is not a long-term UK resident.

• (1A) A holding in an authorised unit trust and a share in an open-ended investment company is excluded property if the person beneficially entitled to it is an individual who is not a long-term UK resident.

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

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

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

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

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

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

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

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

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

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

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

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

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

• (2) Where securities have been issued by the Treasury subject to a condition authorised by section 22 of the 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 of a description specified in the condition, the securities are excluded property if they are in the beneficial ownership of such a person.

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

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

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

Rates

Rates

7

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

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

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

• (i) that value, and

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

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

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

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

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

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

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

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

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

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

Indexation of rate bands

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

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

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

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

• (4) The Treasury shall before 6th April 1994 and each subsequent 6th April make an order specifying the amounts which by virtue of this section will be treated, in relation to chargeable transfers on or after that date, as specified in the Table in Schedule 1 to this Act; and any such order shall be made by statutory instrument.

Transitional provisions on reduction of tax

9

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

Dispositions that are not transfers of value (and omissions that do not give rise to deemed dispositions)

Dispositions not intended to confer gratuitous benefit

10

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

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

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

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

• (3) In this section—

• “disposition” includes anything treated as a disposition by virtue of section 3(3) above;

• “transaction” includes a series of transactions and any associated operations.

Dispositions for maintenance of family

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

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

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

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

• (a) he attains the age of eighteen, or

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

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

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

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

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

• (6) In this section—

• “child” includes a step-child and an adopted child and “parent” shall be construed accordingly;

• “civil partnership”, in relation to a disposition made on the occasion of the dissolution or annulment of a civil partnership, and in relation to a disposition varying a disposition so made, includes a former civil partnership;

• “dependent relative” means in relation to any person—a relative of his, or of his spouse or civil partner , who is incapacitated by old age or infirmity from maintaining himself, orhis mother or father or his spouse's or civil partner's mother or father;

• “marriage”, in relation to a disposition made on the occasion of the dissolution or annulment of a marriage, and in relation to a disposition varying a disposition so made, includes a former marriage;

• “year” means period of twelve months ending with 5th April.

Dispositions allowable for income tax, or conferring retirement benefits

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

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

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

• (2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2F) For the purposes of this section—