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Inheritance Tax Act 1984

Type Public General Act

Publication 1984-07-31

Last updated 2025-04-06

State In force

Department Statute Law Database

Source legislation.gov.uk

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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.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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,

(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

6

(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,

(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

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;

(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

8

(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

11

(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

12

(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—

(a) a person omits to exercise pension rights under a pension scheme if he does not become entitled to the whole or any part of a pension or lump sum (or both) under the pension scheme at a time when he was eligible to become so entitled (whether or not he does become entitled to any other benefits under the pension scheme); . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2G) In this section—

“entitled”, in relation to a pension or lump sum, shall be construed in accordance with section 165(3) or 167(1A), or section 166(2), of the Finance Act 2004;

. . .

“pension” has the same meaning as in Part 4 of that Act (see section 165(2) of that Act);

. . .

. . .

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

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

Dispositions by close companies for benefit of employees

13

(1) A disposition of property made to trustees by a close company whereby the property is to be held on trusts of the description specified in section 86(1) below is not a transfer of value if the persons for whose benefit the trusts permit the property to be applied include all or most of either—

(a) the persons employed by or holding office with the company, or

(b) the persons employed by or holding office with the company or any one or more subsidiaries of the company.

(2) Subsection (1) above shall not apply if the trusts permit any of the property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of—

(a) a person who is , at the time of the disposition, a participator in the company making the disposition, or

(b) any other person who is , at the time of the disposition, a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for this section would have been a transfer of value, or

(c) any other person who is a participator in any such company as is mentioned in paragraph (a) or (b) above at any time after, or during the ten years before, the disposition made by that company, or

(d) any person who is , at the time of the disposition or any later time, connected with any person within paragraph (a), (b) or (c) above.

(3) The participators in a company who are referred to in subsection (2) above do not include any participator who—

(a) is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b) on a winding-up of the company would not be entitled to 5 per cent. or more of its assets.

(4) In determining whether the trusts permit property to be applied as mentioned in subsection (2) above, no account shall be taken—

(a) of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident, or

(b) if the trusts are those of a profit sharing scheme approved under Schedule 9 to the Taxes Act 1988, of any power to appropriate shares in pursuance of the scheme ; or

(c) if the trusts are those of a share incentive plan approved under Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003, of any power to appropriate shares to, or acquire shares on behalf of, individuals under the plan.

(4A) Subsection (4)(a) does not apply if, immediately after the disposition of property mentioned in subsection (1), more than 25% of relevant beneficiaries are (disregarding subsection (4)(a)) persons falling within subsection (2)(a) to (d).

(4B) In subsection (4A) “relevant beneficiary” means a person who—

(a) is a person for whose benefit the trusts permit the property to be applied, and

(b) is a person employed by or holding office with the company mentioned in subsection (1).

(5) In this section—

“close company” and “participator” have the same meanings as in Part IV of this Act;

“ordinary shares” means shares which carry either—a right to dividends not restricted to dividends at a fixed rate, ora right to conversion into shares carrying such a right as is mentioned in paragraph (a) above,

“subsidiary” has the meaning given by section 1159 of and Schedule 6 to the Companies Act 2006;

and references in subsections (2) and (3) above to a participator in a company shall, in the case of a company which is not a close company, be construed as references to a person who would be a participator in the company if it were a close company.

Waiver of remuneration

14

(1) Subject to subsection (2) below, the waiver or repayment of an amount of remuneration is not a transfer of value if, apart from the waiver or repayment, that amount would be earnings, or would be treated as earnings, and would constitute employment income (see section 7(2)(a) or (b) of the Income Tax (Earnings and Pensions) Act 2003) .

(2) Where, apart from the waiver or repayment, the amount of the remuneration would be allowable as a deduction in computing for the purposes of income tax or corporation tax the profits or gains or losses of the person by whom it is payable or paid, this section shall apply only if, by reason of the waiver or repayment, it is not so allowed or is otherwise brought into charge in computing those profits or gains or losses.

Waiver of dividends

15

A person who waives any dividend on shares of a company within twelve months before any right to the dividend has accrued does not by reason of the waiver make a transfer of value.

Grant of tenancies of agricultural property

16

(1) The grant of a tenancy of agricultural property in the United Kingdom ... for use for agricultural purposes is not a transfer of value by the grantor if he makes it for full consideration in money or money’s worth.

(2) Expressions used in subsection (1) above and in Chapter II of Part V of this Act have the same meaning in that subsection as in that Chapter.

Changes in distribution of deceased's estate, etc.

17

None of the following is a transfer of value—

(a) a variation or disclaimer to which section 142(1) below applies;

(b) a transfer to which section 143 below applies;

(d) the renunciation of a claim to legitim or rights under section 131 of the Civil Partnership Act 2004 within the period mentioned in section 147(6) below.

PART II — EXEMPT TRANSFERS

CHAPTER I — GENERAL

Transfers between spouses

18

(1) A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which becomes comprised in the estate of the transferor’s spouse or civil partner or, so far as the value transferred is not so attributable, to the extent that that estate is increased.

(2) If, immediately before the transfer, the transferor but not the transferor’s spouse or civil partner is a long-term UK resident, the value in respect of which the transfer is exempt (calculated as a value on which no tax is chargeable) shall not exceed the exemption limit at the time of the transfer, less any amount previously taken into account for the purposes of the exemption conferred by this section.

(2A) For the purposes of subsection (2), the exemption limit is the amount shown in the second column of the first row of the Table in Schedule 1 (upper limit of portion of value charged at rate of nil per cent).

(3) Subsection (1) above shall not apply in relation to property if the testamentary or other disposition by which it is given—

(a) takes effect on the termination after the transfer of value of any interest or period, or

(b) depends on a condition which is not satisfied within twelve months after the transfer;

but paragraph (a) above shall not have effect by reason only that the property is given to a spouse or civil partner only if he survives the other spouse or civil partner for a specified period.

(4) For the purposes of this section, property is given to a person if it becomes his property or is held on trust for him.

Annual exemption

19

(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 chargeable) do not exceed £3,000.

(2) Where those values fall short of £3,000, the amount by which they fall short shall, in relation to the next following year, be added to the £3,000 mentioned in subsection (1) above.

(3) Where those values exceed £3,000, 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.

(3A) A transfer of value which is a potentially exempt transfer—

(a) shall in the first instance be left out of account for the purposes of subsections (1) to (3) above; and

(b) if it proves to be a chargeable transfer, shall for the purposes of those subsections be taken into account as if, in the year in which it was made, it was made later than any transfer of value which was not a potentially exempt transfer.

(4) In this section “year” means period of twelve months ending with 5th April.

(5) Section 3(4) above shall not apply for the purposes of this section (but without prejudice to sections 57 and 94(5) below).

Small gifts

20

(1) Transfers of value made by a transferor in any one year by outright gifts to any one person are exempt if the values transferred by them (calculated as values on which no tax is chargeable) do not exceed £250.

(2) In this section “year” means period of twelve months ending with 5th April.

(3) Section 3(4) above shall not apply for the purposes of this section.

Normal expenditure out of income

21

(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 section 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—

(a) the purchase of the annuity, and

(b) 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) So much of a purchased life annuity (within the meaning of section 423 of the Income Tax (Trading and Other Income) Act 2005 as is, exempt from income tax under section 717 of that Act , shall not be regarded as part of the transferor’s income for the purposes of this section.

(4) Subsection (3) above shall not apply to annuities purchased before 13th November 1974.

(5) Section 3(4) above shall not apply for the purposes of this section.

Gifts in consideration of marriage

22

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

(a) in the case of gifts within subsection (2) below by a parent of a party to the marriage or civil partnership , £5,000,

(b) in the case of other gifts within subsection (2) below, £2,500, and

any excess being attributed to the transfers in proportion to the values transferred.

(2) A gift is within this subsection 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 or civil partnership , and either the gift is an outright gift to the other party to the marriage or civil partnership or the property comprised in the gift is settled by the gift, or

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

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

(3) A disposition which is an outright gift shall not be treated for the purposes of this section as a gift made in consideration of marriage or civil partnership if, or in so far as, it is a gift to a person other than a party to the marriage or civil partnership .

(4) A disposition which is not an outright gift shall not be treated for the purposes of this section as a gift made in consideration of marriage or civil partnership if the persons who are or may become entitled to any benefit under the disposition include any person other than—

(a) the parties to the marriage or civil partnership, any child of the family of the parties to the marriage or civil partnership, or a spouse or civil partner of any such child;

(b) persons becoming entitled on the failure of trusts for any such child under which trust property would (subject only to any power of appointment to a person falling within paragraph (a) or (c) of this subsection) 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;

(c) a subsequent spouse or civil partner of a party to the marriage or civil partnership, any child of the family of the parties to any such subsequent marriage or civil partnership, or a spouse or civil partner of any such child;

(d) persons becoming entitled under such trusts, subsisting under the law of England and Wales 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 paragraph (a) or (c) of this subsection, or under such trusts, modified by the enlargement, as respects any period during which there is no such child 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);

(e) persons becoming entitled under trusts subsisting under the law of Scotland and corresponding with such trusts as are mentioned in paragraph (d) above;

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

(4A) In subsection (4) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) Section 3(4) above shall not apply for the purposes of this section (but without prejudice to section 57 below).

Gifts to charities

23

(1) Transfers of value are exempt to the extent that the values transferred by them are attributable to property which is given to charities or registered clubs.

(2) Subsection (1) above shall not apply in relation to property if the testamentary or other disposition by which it is given—

(a) takes effect on the termination after the transfer of value of any interest or period, or

(b) depends on a condition which is not satisfied within twelve months after the transfer, or

and for this purpose any disposition which has not been defeated at a time twelve months after the transfer of value 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).

(3) Subsection (1) above shall not apply in relation to property which is an interest in other property if—

(a) that interest is less than the donor’s, or

(b) the property is given for a limited period;

and for this purpose any question whether an interest is less than the donor’s shall be decided as at a time twelve months after the transfer of value.

(4) Subsection (1) above shall not apply in relation to any property if—

(a) the property is land or a building and is given subject to an interest reserved or created by the donor which entitled him, his spouse or civil partner or a person connected with him to possession of, or to occupy, the whole or any part of the land or building rent-free or at a rent less than might be expected to be obtained in a transaction at arm’s length between persons not connected with each other, or

(b) the property is not land or a building and is given subject to an interest reserved or created by the donor other than—

(i) an interest created by him for full consideration in money or money’s worth, or

(ii) an interest which does not substantially affect the enjoyment of the property by the person or body to whom it is given;

and for this purpose any question whether property is given subject to an interest shall be decided as at a time twelve months after the transfer of value.

(5) In the case of any property which is given to charities, subsection (1) above shall not apply in relation to the property if it or any part of it may become applicable for purposes other than charitable purposes or those of a body mentioned in section 24, or 25 below or, where it is land, of a body mentioned in section 24A below.

(5A) In the case of any property which is given to a registered club, subsection (1) above shall not apply in relation to the property if it or any part of it may become applicable for purposes other than—

(a) the purposes of the club in question;

(b) the purposes of another registered club;

(d) charitable purposes.

(6) For the purposes of this section—

(a) property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only; and

(b) property is given to registered clubs if it becomes the property of registered clubs or is held on trust for purposes of registered clubs only;

and “donor” shall be construed accordingly.

(7) For the purposes of this section “registered club” and “eligible sport” have the same meaning as in Chapter 9 of Part 13 of the Corporation Tax Act 2010.

Gifts to political parties

24

(1) 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 section; . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) A political party qualifies for exemption under this section 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 150,000 votes were given to candidates who were members of that party.

(3) Subsections (2) to (5) of section 23 above shall apply in relation to subsection (1) above as they apply in relation to section 23(1).

(4) For the purposes of section 23(2) to (5) as they apply by virtue of subsection (3) above 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.

Gifts for national purposes, etc.

25

(1) 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 a body within Schedule 3 to this Act.

(2) Subsections (2) to (5) of section 23 and subsection (4) of section 24 above shall apply in relation to subsection (1) above as they apply in relation to section 24(1), except that section 23(3) shall not prevent subsection (1) above from applying in relation to property consisting of the benefit of an agreement restricting the use of land.

(3) A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property that is being transferred in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation).

Gifts for public benefit

26

Maintenance funds for historic buildings, etc.

27

(1) Subject to subsection (1A) below, a transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property which by virtue of the transfer becomes comprised in a settlement and in respect of which—

(a) a direction under paragraph 1 of Schedule 4 to this Act has effect at the time of the transfer, or

(b) such a direction is given after the time of the transfer.

(1A) Subsection (1) above does not apply in the case of a direction given after the time of the transfer unless the claim for the direction (if it is not made before that time) is made no more than two years after the date of that transfer, or within such longer period as the Board may allow.

(2) Subsections (2) and (3) of the section 23 and subsection (4) of section 24 above shall apply in relation to subsection (1) above as they apply in relation to section 24(1).

Employee trusts

28

(1) A transfer of value made by an individual who is beneficially entitled to shares in a company is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of the company which become comprised in a settlement if—

(a) the trusts of the settlement are of the description specified in section 86(1) below, and

(b) the persons for whose benefit the trusts permit the settled property to be applied include all or most of the persons employed by or holding office with the company , and

(c) the individual has, throughout the period of two years ending with the date of the transfer, been beneficially entitled to the shares in or securities of the company that become comprised in the settlement.

(2) Subsection (1) above shall not apply unless at the date of the transfer, or at a subsequent date not more than one year thereafter, both the following conditions are satisfied, that is to say—

(a) the trustees—

(i) hold more than one half of the ordinary shares in the company, and

(ii) have powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised on them; and

(b) there are no provisions in any agreement or instrument affecting the company’s constitution or management or its shares or securities whereby the condition in paragraph (a) above can cease to be satisfied without the consent of the trustees.

(3) Where the company has shares or securities of any class giving powers of voting limited to either or both of the following—

(a) the question of winding up the company, and

(b) any question primarily affecting shares or securities of that class,

the reference in subsection (2)(a)(ii) above to all questions affecting the company as a whole shall be read as a reference to all such questions except any in relation to which those powers are capable of being exercised.

(4) Subsection (1) above shall not apply if the trusts permit any of the settled property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of—

(a) a person who is, at the time of the transfer of value mentioned in subsection (1), a participator in the company mentioned in that subsection; or

(b) any other person who is , at the time of the transfer of value mentioned in subsection (1), a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for section 13 above would have been a transfer of value; or

(c) any other person who is a participator in the company mentioned in subsection (1) above or in any such company as is mentioned in paragraph (b) above at any time after, or during the ten years before, the transfer of value mentioned in subsection (1) above; or

(d) any person who is, at the time of the transfer of value mentioned in subsection (1) or any later time, connected with a person within paragraph (a), (b) or (c).

(5) The participators in a company who are referred to in subsection (4) above do not include any participator who—

(a) is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b) on a winding-up of the company would not be entitled to 5 per cent. or more of its assets.

(6) In determining whether the trusts permit property to be applied as mentioned in subsection (4) above, no account shall be taken of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident.

(6A) Subsection (6) does not apply if, immediately after the transfer of value mentioned in subsection (1), more than 25% of relevant beneficiaries are (disregarding subsection (6)) persons falling within subsection (4)(a) to (d).

(6B) In subsection (6A) “relevant beneficiary” means a person who—

(a) is a person for whose benefit the trusts permit the settled property to be applied, and

(b) is a person employed by or holding office with the company mentioned in subsection (1).

(7) Subsection (5) of section 13 above shall have effect in relation to this section as it has effect in relation to that section.

(8) A reference in subsection (1)(c) to shares in or securities of a company includes, in a case in which a reorganisation of share capital has occurred, the original shares to which the new holding relates.

(9) In subsection (8)—

(a) “reorganisation of share capital” means a transaction to which section 127 of the 1992 Act (equation of original shares and new holding) applies or would apply but for section 134 of that Act;

(b) “the original shares” and “the new holding” have the meaning given by section 126(1) of the 1992 Act.

Loans-modifications of exemptions

29

(1) If or to the extent that a transfer of value is a disposition whereby the use of money or other property is allowed by one person to another (“the borrower”), the preceding provisions of this Chapter shall apply to it with the following modification.

(2) For the purposes of section 18 the borrower’s estate shall be treated as increased by an amount equal to the value transferred; and section 18(3) shall not apply.

(3) For the purposes of sections 20 and 22 the transfer of value shall be treated as made by outright gift.

(4) Section 21(1) shall apply as if for the conditions stated in paragraphs (a) and (b) there were substituted the condition that the transfer was a normal one on the part of the transferor.

(5) For the purposes of sections 23 to 25—

(a) the value transferred shall be treated as attributable to the property of which the borrower is allowed the use, and

(b) that property shall be treated as given to, or as becoming the property of, the borrower unless the use allowed includes use for purposes other than charitable purposes or those of a body mentioned in section 24, or 25or where it is land, of a body mentioned in section 24A

and sections 23(2) to (6), 24 . . . , (3) and (4), 24A(3)and 25(2) shall not apply.

CHAPTER II — CONDITIONAL EXEMPTION

Conditionally exempt transfers

30

(1) A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property—

(a) which, on a claim made for the purpose, is designated by the Treasury under section 31 below, and

(b) with respect to which the requisite undertaking described in that section is given by such person as the Treasury think appropriate in the circumstances of the case or (where the property is an area of land within subsection (1)(d) of that section) with respect to which the requisite undertakings described in that section are given by such person or persons as the Treasury think appropriate in the circumstances of the case.

(2) A transfer of value exempt with respect to any property under this section or under section 76 of the Finance Act 1976 is referred to in this Act as a conditionally exempt transfer of that property.

(3) Subsection (1) above shall not apply to a transfer of value other than one which under section 4 above a person makes on his death unless—

(a) the transferor or his spouse or civil partner , or the transferor and his spouse or civil partner between them, have been beneficially entitled to the property throughout the six years ending with the transfer, or

(b) the transferor acquired the property on a death on the occasion of which there was a transfer of value under section 4 above which was itself a conditionally exempt transfer of the property.

(3A) The provisions of this section shall be disregarded in determining under section 3A above whether a transfer of value is a potentially exempt transfer.

(3B) No claim may be made under subsection (1) above with respect to a potentially exempt transfer until the transferor has died.

(3BA) A claim under subsection (1) above must be made no more than two years after the date of the transfer of value to which it relates or, in the case of a claim with respect to a potentially exempt transfer, the date of the death, or (in either case) within such longer period as the Board may allow.

(3C) Subsection (1) above shall not apply to a potentially exempt transfer to the extent that the value transferred by it is attributable to property which has been disposed of by sale during the period beginning with the date of the transfer and ending with the death of the transferor.

(4) Subsection (1) above does not apply to a transfer of value to the extent to which it is an exempt transfer under section 18 or 23 above.

Designation and undertakings

31

(1) The Treasury may designate under this section—

(a) any relevant object which appears to the Board to be pre-eminent for its national, scientific, historic or artistic interest;

(aa) any collection or group of relevant objects which, taken as a whole, appears to the Board to be pre-eminent for its national, scientific, historic or artistic interest;

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

(c) any 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 interest;

(d) any area of land which in the opinion of the Treasury is essential for the protection of the character and amenities of such a building as is mentioned in paragraph (c) above;

(e) any object which in the opinion of the Treasury is historically associated with such a building as is mentioned in paragraph (c) above.

(1A) Where the transfer of value in relation to which the claim for designation is made is a potentially exempt transfer which (apart from section 30 above) has proved to be a chargeable transfer, the question whether any property is appropriate for designation under this section shall be determined by reference to circumstances existing after the death of the transferor.

(2) In the case of property within subsection (1)(a)or(aa) above, the requisite undertaking is that, until the person beneficially entitled to the property dies or the property is disposed of, whether by sale or gift or otherwise—

(a) the property will be kept permanently in the United Kingdom and will not leave it temporarily except for a purpose and a period approved by the Treasury, and

(b) such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it, will be taken for the preservation of the property and for securing reasonable access to the public.

(3) If it appears to the Treasury, on a claim made for the purpose, that any documents which are designated or to be designated under subsection (1)(a) or (aa) above contain information which for personal or other reasons ought to be treated as confidential, they may exclude those documents, either altogether or to such extent as they think fit, from so much of an undertaking given or to be given under subsection (2)(b) above as relates to public access.

(4) In the case of other property within subsection (1) above, the requisite undertaking is that, until the person beneficially entitled to the property dies or the property is disposed of, whether by sale or gift or otherwise, such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it, will be taken—

(a) in the case of land falling within subsection (1)(b) above, for the maintenance of the land and the preservation of its character, and

(b) in the case of any other property, for the maintenance, repair and preservation of the property and, if it is an object falling within subsection (1)(e) above, for keeping it associated with the building concerned;

and for securing reasonable access to the public.

(4A) In the case of an area of land within subsection (1)(d) above (relevant land) there is an additional requisite undertaking, which is that, until the person beneficially entitled to property falling within subsection (4C) below dies, or it is disposed of, whether by sale or gift or otherwise, specified steps will be taken for its maintenance, repair and preservation and for securing reasonable access to the public; and “specified steps” means such steps as are agreed between the Treasury and the person giving the undertaking, and are set out in it.

(4B) Where different persons are entitled (either beneficially or otherwise) to different properties falling within subsection (4C) below, subsection (4A) above shall have effect to require separate undertakings as to the maintenance, repair, preservation and access of each of the properties to be given by such persons as the Treasury think appropriate in the circumstances of the case.

(4C) The following property falls within this subsection—

(a) the building for the protection of whose character and amenities the relevant land is in the opinion of the Treasury essential;

(b) any other area (or areas) of land which, in relation to the building, falls (or fall) within subsection (1)(d) above and which either lies (or lie) between the relevant land and the building or is (or are) in the opinion of the Treasury, physically closely connected with the relevant land or the building.

(4D) Where subsection (4A) above requires an undertaking for the maintenance, repair, preservation and access of property, such an undertaking is required notwithstanding that some other undertaking for its maintenance, repair, preservation and access is effective.

(4E) Any undertaking given in pursuance of subsection (4A) above is for the purposes of this Act given with respect to the relevant land.

(4F) It is for the person seeking the designation of relevant land to secure that any undertaking required under subsection (4A) above is given.

(4FA) For the purposes of this section, the steps agreed for securing reasonable access to the public must ensure that the access that is secured is not confined to access only where a prior appointment has been made.

(4FB) Subject to subsection (3) above, where the steps that may be set out in any undertaking include steps for securing reasonable access to the public to any property, the steps that may be agreed and set out in that undertaking may also include steps involving the publication of—

(a) the terms of any undertaking given or to be given for any of the purposes of this Act with respect to the property; or

(b) any other information relating to the property which (apart from this subsection) would fall to be treated as confidential;

and references in this Act to an undertaking for access to any property shall be construed as including references to so much of any undertaking as provides for the taking of steps involving any such publication.

(4G) In a case where—

(a) the transfer of value in question is a potentially exempt transfer which (apart from section 30 above) has proved to be a chargeable transfer, and

(b) at the time of the transferor’s death an undertaking by such a person as is mentioned in section 30(1)(b) above given under paragraph 3(3) of Schedule 4 to this Act or under section 258 of the 1992 Act is in force with respect to any property to which the value transferred by the transfer is attributable,

that undertaking shall be treated for the purposes of this Chapter as an undertaking given under section 30 above.

(5) In this section—

’national interest’ includes interest within any part of the United Kingdom; and

’relevant object’ means—a picture, print, book, manuscript, work of art or scientific object, oranything not falling within paragraph (a) above that does not yield income;

and in determining under subsection (1)(a) or (aa) above whether an object or a collection or group of objects is pre-eminent, regard shall be had to any significant association of the object, collection or group with a particular place.

Chargeable events

32

(1) Where there has been a conditionally exempt transfer of any property, tax shall be charged under this section on the first occurrence after the transfer (or, if the transfer was a potentially exempt transfer, after the death of the transferor) of an event which under this section is a chargeable event with respect to the property.

(2) If the Treasury are satisfied that at any time an undertaking given with respect to the property under section 30 above or subsection (5AA) below has not been observed in a material respect, the failure to observe the undertaking is a chargeable event with respect to the property.

(3) If—

(a) the person beneficially entitled to the property dies, or

(b) the property is disposed of, whether by sale or gift or otherwise,

the death or disposal is, subject to subsections (4), (4A) and (5) below, a chargeable event with respect to the property.

(4) A death or disposal is not a chargeable event with respect to any property if the personal representatives of the deceased (or, in the case of settled property, the trustees or the person next entitled) within three years of the death make or, as the case may be, the disposal is—

(a) a disposal of the property by sale by private treaty to a body mentioned in Schedule 3 to this Act, or a disposal of it to such a body otherwise than by sale, or

(b) a disposal in pursuance of section 230 below,

and a death or disposal of the property after such a disposal as is mentioned in paragraph (a) or (b) above is not a chargeable event with respect to the property unless there has again been a conditionally exempt transfer of it after that disposal.

(4A) A death or disposal is not a chargeable event with respect to any property if—

(a) in the case of a death, a person who became beneficially entitled to the property on the death disposes of it in the circumstances described in paragraph 1 of Schedule 14 to the Finance Act 2012 (gifts to the nation) within 3 years of the death, or

(b) in the case of a disposal, the disposal is made in the circumstances described in paragraph 1 of that Schedule,

and a death or disposal of the property after such a disposal as is mentioned in paragraph (a) or (b) is not a chargeable event with respect to the property unless there has again been a conditionally exempt transfer of it after that disposal.

(5) A death or disposal otherwise than by sale is not a chargeable event with respect to any property if—

(a) the transfer of value made on the death or the disposal is itself a conditionally exempt transfer of the property, or

(b) the condition specified in subsection (5AA) below is satisfied with respect to the property.

(5AA) The condition referred to in subsection (5)(b) above is satisfied if—

(a) the requisite undertaking described in section 31 above is given with respect to the property by such person as the Board think appropriate in the circumstances of the case, or

(b) (where the property is an area of land within section 31(1)(d) above) the requisite undertakings described in that section are given with respect to the property by such person or persons as the Board think appropriate in the circumstances of the case.

(5A) This section does not apply where section 32A below applies.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of charge under section 32

33

(1) Tax chargeable in respect of any property under section 32 or 32A above by reference to a chargeable event shall be charged—

(a) on an amount equal to the value of the property at the time of the chargeable event; and

(b) at the following rate or rates—

(i) if the relevant person is alive, the rate or rates that would be applicable to that amount in accordance with section 7(2) above if it were the value transferred by a chargeable transfer made by the relevant person at that time;

(ii) if the relevant person is dead, the rate or rates that would have applied to that amount in accordance with the appropriate provision of section 7 above if it had been added to the value transferred on his death and had formed the highest part of that value.

(2) For the purposes of subsection (1)(b)(ii) above the appropriate provision of section 7 above is—

(a) if the conditionally exempt transfer by the relevant person was made on death (but the property was not treated as forming part of his estate immediately before his death only by virtue of section 102(3) of the Finance Act 1986), subsection (1) of section 7; and

(b) in any other case, subsection (2) of section 7.

(2ZA) In determining for the purposes of subsection (1)(b)(ii) the rate or rates that would have applied in accordance with subsection (1) of section 7, the effect of Schedule 1A (if it would have applied) is to be disregarded.

(2A) The rate or rates of tax determined under subsection (1)(b)(i) above in respect of any chargeable event shall not be affected by the death of the relevant person after that event.

(3) Where the chargeable event is a disposal on sale and the sale—

(a) was not intended to confer any gratuitous benefit on any person, and

(b) was either a transaction at arm’s length between persons not connected with each other or a transaction such as might be expected to be made at arm’s length between persons not connected with each other,

the value of the property at the time of the chargeable event shall be taken for the purposes of subsection (1)(a) above to be equal to the proceeds of the sale.

(4) Where by virtue of section 30(4) above the conditionally exempt transfer extended only to part of the property, the amount mentioned in subsection (1)(a) above shall be proportionately reduced.

(5) The relevant person in relation to a chargeable event in respect of any property is—

(a) if there has been only one conditionally exempt transfer of the property before the event, the person who made that transfer;

(b) if there have been two or more such transfers and the last was before, or only one of them was within, the period of thirty years ending with the event, the person who made the last of those transfers;

(c) if there have been two or more such transfers within that period, the person who made whichever of those transfers the Board may select.

(6) The conditionally exempt transfers to be taken into account for the purpose of subsection (5) above in relation to a chargeable event do not include transfers made before any previous chargeable event in respect of the same property or before any event which apart from section 32(4) or (4A) above would have been such a chargeable event or, where the property has been disposed of as mentioned in section 32A(5) or (5A) above, before any event which apart from section 32A(5) or (5A) would have been such a chargeable event

(7) Subject to subsection (8) below, where after a conditionally exempt transfer of any property there is a chargeable transfer the value transferred by which is wholly or partly attributable to that property, any tax charged on that value so far as attributable to that property shall be allowed as a credit—

(a) if the chargeable transfer is a chargeable event with respect to the property, against the tax chargeable in accordance with this section by reference to that event;

(b) if the chargeable transfer is not such a chargeable event, against the tax chargeable in accordance with this section by reference to the next chargeable event with respect to the property.

(8) Where after a conditionally exempt transfer of any property there is a potentially exempt transfer the value transferred by which is wholly or partly attributable to that property and either—

(a) the potentially exempt transfer is a chargeable event with respect to the property, or

(b) after the potentially exempt transfer, but before the death of the person who is the transferor in relation to the potentially exempt transfer, a chargeable event occurs with respect to the property,

the tax charged in accordance with this section by reference to that chargeable event shall be allowed as a credit against any tax which may become chargeable, by reason of the potentially exempt transfer proving to be a chargeable transfer, on so much of the value transferred by that transfer as is attributable to the property; and subsection (7) above shall not apply with respect to any tax so becoming chargeable.

Reinstatement of transferor's cumulative total

34

(1) Where tax has become chargeable under section 32 or 32A above by reference to a chargeable event in respect of any property (“the relevant event”) the rate or rates of tax applicable to any subsequent chargeable transfer made by the person who made the last conditionally exempt transfer of the property before the relevant event shall be determined as if the amount on which tax has become chargeable as aforesaid were value transferred by a chargeable transfer made by him at the time of the relevant event.

(2) Where the person who made the last conditionally exempt transfer of the property before the relevant event—

(a) is dead, and

(b) is for the purposes of section 33 above the relevant person in relation to a subsequent chargeable event,

section 33(1)(b)(ii) shall have effect as if the value transferred on his death were increased by the amount on which tax has become chargeable on the occasion of the relevant event.

(3) If—

(a) the person who made the last conditionally exempt transfer of the property before the relevant event is not the relevant person for the purposes of section 33 above in relation to that event, and

(b) at the time of that event or within the previous five years the property is or has been comprised in a settlement made not more than thirty years before that event, and

(c) a person who is the settlor in relation to the settlement has made a conditionally exempt transfer of the property within those thirty years,

subsections (1) and (2) above shall have effect with the substitution for references to the person who made the last conditionally exempt transfer before the relevant event of a reference to any such person as is mentioned in paragraph (c) above.

(4) The conditionally exempt transfers to be taken into account for the purposes of subsection (3)(c) above in relation to the relevant event do not include transfers made before any previous chargeable event in respect of the same property or before any event which apart from section 32(4) or (4A) above would have been such a chargeable event or, where the property has been disposed of as mentioned in section 32A(5) or (5A) above, before any event which apart from section 32A(5) or (5A) would have been such a chargeable event.

Conditional exemption on death before 7th April 1976

35

(1) Schedule 5 to this Act shall have effect with respect to certain cases where, by virtue of sections 31 to 34 of the Finance Act 1975, the value of any property was left out of account in determining the value transferred on a death before 7th April 1976.

(2) Where there has been a transfer of value in relation to which the value of any property has been left out of account under the provisions of sections 31 to 34 of the Finance Act 1975 and, before any tax has become chargeable in respect of that property under those provisions, there is a conditionally exempt transfer of that property, then, on the occurrence of a chargeable event in respect of that property—

(a) tax shall be chargeable under section 32 or 32A (as the case may be), or

(b) tax shall be chargeable under Schedule 5,

(3) In sections 33(7) and (8) above, references to a conditionally exempt transfer of any property include references to a transfer of value in relation to which the value of any property has been left out of account under the provisions of sections 31 to 34 of the Finance Act 1975 and, in relation to such property, references to a chargeable event or to the tax chargeable in accordance with section 33 above by reference to a chargeable event include references to an event on the occurrence of which tax becomes chargeable under Schedule 5 to this Act, or to the tax so chargeable.

CHAPTER III — ALLOCATION OF EXEMPTIONS

Preliminary

36

Where any one or more of sections 18, 23 to 27 and 30 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 sections 37 to 40 below; and

(b) section 41 below shall have effect as respects the burden of tax.

Abatement of gifts

37

(1) 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 Chapter as so abated.

(2) Where the value attributable, in accordance with section 38 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

38

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

(a) are not gifts with respect to which the transfer is exempt or are outside the limit up to which the transfer is exempt, and

(b) do not bear their own tax,

the amount corresponding to the value of the gifts shall be taken to be the amount arrived at in accordance with subsections (3) to (5) below.

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