Finance Act 1986

• (a) the names and addresses of the persons to whom the asset is jointly leased;

• (b) the portion of the new expenditure which is properly attributable to each of those persons; and

• (c) so far as it is within his knowledge, which of those persons is resident in the United Kingdom.

• (6) If, at the end of the three months referred to in sub-paragraph (3) or sub-paragraph (5) above, the person required to give a notice under that sub-paragraph does not know and cannot reasonably be expected to know that any item of machinery or plant in respect of which he is required to give such a notice has been used or leased as mentioned in the sub-paragraph in question, he shall in respect of that item give the notice within thirty days of his coming to know that it has been so used or leased.

• (7) In the Table in section 98 of the Taxes Management Act 1970 (penalties) at the end of the second column there shall be added—

Paragraph 10 of Schedule 16 to the Finance Act 1986

.

PART IV — Amendment of Finance Act 1980, Section 69

11

In section 69 (writing-down allowances etc. for cars) for the words from "any vehicle" onwards there shall be substituted

any mechanically propelled vehicle other than— (a) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description; (b) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used; (c) a vehicle to which paragraph 10 of Schedule 8 to the Finance Act 1971 applies (expensive motor cars); and (d) subject to subsection (2) below, a vehicle provided wholly or mainly for hire to, or for the carriage of, members of the public in the ordinary course of a trade. (2) Subsection (1)(d) above applies to a vehicle only if— (a) the following conditions are satisfied— (i) the number of consecutive days for which it is on hire to, or used for the carriage of, the same person will normally be less than 30; and (ii) the total number of days for which it is on hire to, or used for the carriage of, the same persoji in any period of 12 months will normally be less than 90; or (b) it is provided for hire to a person who will himself use it wholly or mainly for hire to, or the carriage of, members of the public in the ordinary course of a trade and in a manner complying with the conditions in paragraph (a) above. (3) For the purposes of subsection (2) above, persons who are connected with each other shall be treated as the same person; and that subsection does not affect vehicles provided wholly or mainly as mentioned in section 64(12) above.

SCHEDULE 17

1

• (1) The following shall be inserted at the end of paragraph 8 of Schedule 23 to the Finance Act 1985 (trustees)—

(4) Sub-paragraph (1) above does not apply where the annual profits or gains are treated as received by the investment manager of a common investment fund for the time being designated as mentioned in section 413(1) of the Taxes Act (funds in court). (5) Where the income or part of the income derived in a year of assessment from such a common investment fund or its investments consists of interest on securities, the income or part (as the case may be) shall for the purposes of section 413(1)(a) of the Taxes Act be calculated by treating it as the amount it would be apart from section 74(5) of this Act, but reduced by an amount (if any) equal to the excess of A over B. (6) In sub-paragraph (5) above— - A is the total amount of allowances to which, by virtue of section 74(4) of this Act, the investment manager of the fund is entitled in the year of assessment in respect of all securities comprised in the fund, and - B is the total amount of annual profits or gains which, by virtue of section 74(2) of this Act, he is treated as receiving in the year of assessment in respect of those securities.

• (2) Paragraph 8 shall be treated as having been enacted with subparagraphs (4) to (6).

2

• (1) Paragraph 15 of that Schedule (transfer of unrealised interest) shall be amended as follows.

• (2) For sub-paragraph (5) there shall be substituted—

(5) Section 75 of this Act applies for the purposes of this paragraph as if in subsection (1) the reference to section 73(2)(a) or (3)(a) were to sub-paragraph (2) or (3) above and references to the year of assessment in which the interest period ends were to the year in which the settlement day falls, and as if in subsection (2) the reference to section 73(2)(b) or (3)(b) were to sub-paragraph (4) above.

• (3) After sub-paragraph (7) there shall be inserted—

(7A) Where sub-paragraph (4) above applies, section 33 of the Capital Gains Tax Act 1979 shall be disregarded in computing for capital gains tax purposes the gain accruing to the transferee if he disposes of the securities, but an amount equal to the amount of the unrealised interest shall be excluded from the sums mentioned in paragraph 33(5) below.

• (4) This paragraph applies where securities are transferred after 18th March 1986.

3

• (1) The following shall be inserted after paragraph 15 of that Schedule—

(15A) (1) This paragraph applies to securities other than securities falling within sub-paragraph (2) or (4) below. (2) Securities fall within this sub-paragraph if their terms of issue provide that throughout the period from issue to redemption (whenever redemption might occur) they are to carry interest at a rate which falls into one, and one only, of the following categories— (a) a fixed rate which is the same throughout the period; (b) a rate which bears to a standard published base rate the same fixed relationship throughout the period; (c) a rate which bears to a published index of prices the same fixed relationship throughout the period. (3) In sub-paragraph (2)(c) above "published index of prices" means the retail prices index (within the meaning of section 24 of the Finance Act 1980) or any similar general index of prices which is published by, or by an agent of, the government of any territory outside the United Kingdom. (4) Securities fall within this sub-paragraph if they are deep discount securities and the rate of interest for each (or their only) interest period is equal to or less than the yield to maturity. (5) In sub-paragraph (4) above "deep discount securities" and "yield to maturity" have the same meanings as in Schedule 9 to the Finance Act 1984; and for the purposes of that sub-paragraph the rate of interest for an interest period is, in relation to securities, the rate of return (expressed as a percentage) attributable to the interest applicable to them for the interest period. (6) Sub-paragraphs (7) to (11) below apply if securities to which this paragraph applies are transferred at any time between the time they are issued and the time they are redeemed. (7) If the securities are transferred without accrued interest they shall be treated for the purposes of this Chapter as transferred with accrued interest. (8) The person entitled to the securities immediately before they are redeemed shall be treated for the purposes of this Chapter as transferring them with accrued interest on the day they are redeemed. (9) Where there is a transfer as mentioned in sub-paragraph (6) above or by virtue of sub-paragraph (8) above, section 73 of this Act shall be construed as if the following were substituted for subsections (2)(b) and (3) to (8)— (3) In subsection (2)(a) above "the accrued amount" means such amount (if any) as an inspector decides is just and reasonable; and the jurisdiction of the General Commissioners or the Special Commissioners on any appeal shall include jurisdiction to review such a decision of the inspector. (10) Sub-paragraph (11) below applies where there is a transfer by virtue of sub-paragraph (8) above and the settlement day in relation to the transfer falls after the end of a period which would (by virtue of paragraph 3(3) and (4) above and apart from this paragraph) be the only or last interest period in relation to the securities. (11) For the purposes of this Chapter the period beginning with the day following that interest period and ending with the settlement day shall be treated as an interest period in relation to the securities; and paragraph 3(4) above shall not apply to it. (15B) (1) This paragraph applies where, because of any failure to fulfil the obligation to pay interest on securities, the value (on a day mentioned in paragraph 3(6) or (7)(a) above, as the case may be) of the right to receive the interest payable on them on that day is less than the interest so payable. (2) Paragraph 3(6) or (7)(a), as the case may be, shall be construed as if" the reference to that interest were to an amount equal to that value. (15C) (1) Where securities are transferred as mentioned in paragraph 15(1) above and, because of any failure to fulfil the obligation to pay interest on them, the value (on the day of the transfer) of the right to receive the unrealised interest is less than the amount of the unrealised interest, paragraph 15 above shall have effect as modified by sub-paragraphs (2) to (6) below. (2) In sub-paragraphs (2) and (3) for "the unrealised interest" there shall be substituted "amount A". (3) For sub-paragraph (4) there shall be substituted— (4) Where the transferee receives an amount by way of the unrealised interest (amount B) and that amount falls to be taken into account in computing tax charged for the chargeable period in which it is received, it shall for the purposes of the Tax Acts be treated as reduced by an amount (amount C) equal to— (a) nil, if amounts have been previously received by the transferee by way of the unrealised interest and their aggregate is equal to or greater than the value (on the day of the transfer to the transferee) of the right to receive the unrealised interest, (b) amount B, if that value is equal to or greater than amount B (aggregated with other amounts previously so received, if any), (c) that value, if no amount has been previously so received and that value is less than amount B, or (d) so much of that value as exceeds the aggregate of amounts previously so received, in any other case. (4) In sub-paragraph (7) for "the amount of the unrealised interest" there shall be substituted "amount A". (5) In sub-paragraph (7A) for "the amount of the unrealised interest" there shall be substituted "amount C". (6) The following shall be substituted for sub-paragraph (8)— (8) In this paragraph 'amount A' means, in a case where the transferor acquired the securities by a transfer on or after 28th February 1986 with the right to receive unrealised interest.— (a) an amount equal to amount D less amount E, or (b) if amount D is equal to or less than amount E, nil. (9) In this paragraph 'amount A' means, in a case not falling within sub-paragraph (8) above, an amount equal to amount D. (10) In this paragraph 'amount D' is an amount equal to the value (on the day of the transfer by the transferor) of the right to receive the unrealised interest. (11) In this paragraph 'amount E' means, in a case where the transferor (as transferee) has received in respect of the securities an amount or amounts falling within sub-paragraph (4) above.— (a) an amount equal to amount F less the total received, or (b) if amount F is equal to or less than the total received, nil. (12) In this paragraph 'amount E' means, in any other case, an amount equal to amount F. (13) In this paragraph 'amount F' means an amount equal to the value (on the day of the transfer to the transferor) of the right to receive the unrealised interest. (14) In determining for the purposes of this paragraph which securities of a particular kind a person has transferred, he is to be taken to have transferred securities of that kind which he acquired later before securities of that kind which he acquired earlier. (15) Where the unrealised interest is payable in a currency other than sterling— (a) any amount received by way of the interest is for the purposes of this paragraph the sterling equivalent on the day it is received of the amount it would be apart from this sub-paragraph, and (b) the value (on the day of a transfer) of the right to receive the interest is for the purposes of this paragraph the sterling equivalent (on that day) of the value it would be apart from this sub-paragraph; and for this purpose the sterling equivalent is to be calculated by reference to the London closing rate of exchange for the day concerned.

• (2) In consequence of sub-paragraph (1) above, in paragraph 4(4) of that Schedule after "14" there shall be inserted ", 15A(8)".

• (3) The reference in paragraph 15A(6) to a time of transfer is to a time falling after 18th March 1986; and sub-paragraph (2) above applies accordingly.

• (4) Paragraphs 15B and 15C apply where securities are transferred after 18th March 1986.

4

• (1) The following shall be inserted after paragraph 32 of that Schedule—

(32A) (1) Sub-paragraphs (2) and (3) below apply where securities are transferred and the interest which falls due on them at the end of the interest period in which the settlement day falls is subject to arrangements under section 343 of the Taxes Act or to the provisions of regulations under subsection (1A) of that section; but those sub-paragraphs do not apply where the interest is subject to the provisions of those regulations and would on being paid (to whatever person) be a gross payment within the meaning of those regulations. (2) Section 73(4) of this Act shall be construed as if the following were substituted for paragraphs (a) and (b)— (a) if the securities are transferred under an arrangement by virtue of which the transferee accounts to the transferor separately for the consideration for the securities and for an amount equal to the grossed up equivalent of the interest (if any) accruing to the settlement day, an amount equal to that amount, and (b) in any other case, an amount equal to the accrued proportion of the grossed up equivalent of the interest applicable to the securities for the period. (3) Section 73(5) of this Act shall be construed as if the following were substituted for paragraphs (a) and (b)— (a) if the securities are transferred under an arrangement by virtue of which the transferor accounts to the transferee for an amount equal to the grossed up equivalent of the interest (if any) accruing from the settlement day to the next interest payment day, an amount equal to that amount, and (b) in any other case, an amount equal to the rebate proportion of the grossed up equivalent of the interest applicable to the securities for the period. (4) Where the unrealised interest mentioned in paragraph 15 above is subject to arrangements under section 343 of the Taxes Act or to the provisions of regulations under subsection (1A) of that section, that paragraph shall be construed as if in subparagraphs (2), (3), (7) and (7A) "the unrealised interest" read "the grossed up equivalent of the unrealised interest"; but this does not apply where the unrealised interest is subject to the provisions of those regulations and would on being paid (to whatever person) be a gross payment within the meaning of those regulations. (5) In calculating the grossed up equivalent of interest for the purposes of section 73(4)(i) and (5)(i) of this Act and paragraph 15(2), (3), (7) and (7A) above (as substituted or amended as mentioned in this paragraph) the interest shall, in a case where it is subject to the provisions of regulations under section 343(1 A) of the Taxes Act, be treated as if it would, on being paid, not be a gross payment within the meaning of those regulations. (6) For the purposes of the provisions of this Chapter mentioned in sub-paragraph (5) above the grossed up equivalent of interest is to be calculated by adding to the interest a sum found by applying the following formula— $SI+S=R$ . (7) In sub-paragraph (6) above— - S is the sum to be found, - I is the interest, and - R is the basic rate of income tax (expressed as a fraction) for the year of assessment in which the interest is payable. (32B) (1) This paragraph applies where a sum is both interest mentioned in section 74(5) of this Act, paragraph 9(4) above or paragraph 39(4) below and dividends or interest in the case of which section 343(2)(b) or (3)(c) of the Taxes Act applies. (2) In calculating the deduction of income tax as mentioned in section 343(2)(b) or (3)(c) any reduction mentioned in section 74(5), paragraph 9(4) or paragraph 39(4) shall be disregarded. (3) The amount which is treated as reduced as mentioned in section 74(5), paragraph 9(4) or paragraph 39(4) shall be the amount the person concerned is treated as receiving by virtue of section 343(2)(b) or (3)(c) (rather than the interest which falls due). (32C) (1) The effect of section 61(3) of the Finance Act 1986 (transfer for purposes of stock lending not taken into account in computing trade's profits or losses) shall be disregarded in construing section 75(1)(a) and (2)(a) of this Act. (2) Where securities are transferred in circumstances such that by virtue of section 61(4) of the Finance Act 1986 any disposal and acquisition are disregarded for the purposes of capital gains tax, section 73(2) and (3) of this Act and paragraph 15 above do not apply.

• (2) Paragraph 32A applies where securities are transferred after 18th March 1986.

• (3) Paragraph 32B applies where interest falls due after 18th March 1986.

5

• (1) In paragraph 43 of that Schedule (manufactured dividends) for paragraph (c) of sub-paragraph (1) there shall be substituted—

(c) any contract under which the securities are transferred to the seller, or the contract mentioned in paragraph (b) above, is one in the case of which section 477 of the Taxes Act (manufactured dividends) has effect and in relation to which the seller is the dividend manufacturer.

• (2) In sub-paragraphs (2) and (3) of paragraph 43 after the word "contract" (in each place) there shall be inserted the words "mentioned in sub-paragraph (1)(b) above".

• (3) This paragraph applies where the contract in relation to which the seller is the dividend manufacturer is made after 18th March 1986.

6

• (1) In paragraph 44 of that Schedule (information) in subparagraph (2) for the word "jobber" there shall be substituted the words "market maker".

• (2) After sub-paragraph (5) of paragraph 44 there shall be inserted—

(5A) In this paragraph "market maker", in relation to securities, means a person who— (a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of the kind concerned at a price specified by him, and (b) is recognised as doing so by the Council of The Stock Exchange.

• (3) Sub-paragraphs (1) and (2) above apply in relation to transactions on or after the day of The Stock Exchange reforms.

• (4) The Board may by regulations provide that—

• (a) sub-paragraphs (2) and (3) of paragraph 44 and paragraph (a) of sub-paragraph (5A) (as inserted by sub-paragraph (2) above) shall have effect as if references to The Stock Exchange were to any recognised investment exchange or to any of those exchanges specified in the regulations, and

• (b) paragraph (b) of sub-paragraph (5A) shall have effect as if the reference to the Council of The Stock Exchange were to the investment exchange concerned.

• (5) In sub-paragraph (4) above "recognised investment exchange" means a recognised investment exchange within the meaning of the Financial Services Act 1986.

• (6) Regulations under sub-paragraph (4) above shall apply in relation to transactions effected on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

• (7) The power to make regulations under sub-paragraph (4) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

• (8) In this paragraph "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

SCHEDULE 18

Sale and re-purchase of securities

1

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

Purchase and sale of securities

2

• (1) In section 471 of the Taxes Act (purchase and sale of securities) the following shall be substituted for subsection (6)(c)—

(c) 'securities' includes stocks and shares, except securities which are securities for the purposes of Chapter IV of Part II of the Finance Act 1985 (accrued income scheme etc.).

• (2) Sub-paragraph (1) above applies where the first buyer purchases after 18th March 1986; and section 475(6) of the Taxes Act and paragraph 42 of Schedule 23 to the Finance Act 1985 shall cease to have effect where the first buyer purchases after that date.

3

• (1) In section 472 of the Taxes Act (dealers in securities) the following shall be substituted for subsection (2)—

(2) Subsection (1) of this section shall not apply if the subsequent sale is carried out by the first buyer in the ordinary course of his business as a market maker in securities of the kind concerned.

• (2) At the end of that section there shall be inserted—

(6) For the purposes of subsection (2) of this section a person is a market maker in securities of a particular kind if he— (a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and (b) is recognised as doing so by the Council of The Stock Exchange.

• (3) This paragraph applies where the subsequent sale is carried out by the first buyer on or after the day of The Stock Exchange reforms.

4

• (1) The Board may by regulations provide for all or any of the following—

• (a) that section 472(2) of the Taxes Act (as substituted by paragraph 3(1) above) shall not apply unless the subsequent sale is carried out in compliance with further conditions specified in the regulations;

• (b) that section 472(6) of that Act (as inserted by paragraph 3(2) above) shall have effect as if the reference to The Stock Exchange in paragraph (a) were to any recognised investment exchange or to any of those exchanges specified in the regulations, and as if the reference to the Council of The Stock Exchange in paragraph (b) were to the investment exchange concerned;

• (c) that for section 475(3) and (5) of that Act (which refer to The Stock Exchange Daily Official List) there shall be substituted such provisions as the Board think fit to take account of recognised investment exchanges.

• (2) The regulations shall apply where the subsequent sale is carried out by the first buyer on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

Manufactured dividends

5

• (1) Section 477 of the Taxes Act (manufactured dividends) shall be amended as follows—

• (a) in subsection (1), in paragraph (a), for the words "the seller is required to pay to the purchaser" there shall be substituted the words "one of the parties to the contract (the dividend manufacturer) is required to pay to the other";

• (b) in that subsection, in paragraph (b) and the words following it, for the word "seller" (in each place) there shall be substituted the words "dividend manufacturer";

• (c) in subsection (3) after the word "sold" there shall be inserted the words "or purchased";

• (d) in subsection (4) for the word "seller" there shall be substituted the words "dividend manufacturer";

• (e) in subsection (5) for the words "seller under" there shall be substituted the words "dividend manufacturer in relation to" and for the word "seller" (in the other two places) there shall be substituted the words "dividend manufacturer".

• (2) Sub-paragraph (1) above applies where the contract for the sale of securities is made after 18th March 1986.

6

• (1) Section 477 of the Taxes Act shall also be amended as provided by this paragraph.

• (2) In subsection (3) for the word "jobber" (in the first place where it occurs) there shall be substituted the words "market maker" and for the word "jobber" (in the second place where it occurs) there shall be substituted the words "market maker in securities of the kind concerned".

• (3) In subsection (6) the following shall be substituted for the definitions of "broker" and "jobber"—

• "broker", in relation to securities, means a member of The Stock Exchange who carries on his business in the United Kingdom and is not, at the time the contract for the sale of the securities is made, a market maker in securities of the kind concerned,
• "market maker", in relation to securities of a particular kind, means a person who— holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and is recognised as doing so by the Council of The Stock Exchange,

.

• (4) Sub-paragraphs (2) and (3) above apply where the contract for the sale of securities is made on or after the day of The Stock Exchange reforms.

• (5) The Board may by regulations provide that section 477(6) (as amended by sub-paragraph (3) above) shall have effect-

• (a) as if references to The Stock Exchange in the definition of "broker" and in paragraph (a) of the definition of "market maker" were to any recognised investment exchange or to any of those exchanges specified in the regulations, and

• (b) as if the reference to the Council of The Stock Exchange in paragraph (b) of the definition of "market maker" were to the investment exchange concerned.

• (6) Regulations under sub-paragraph (5) above shall apply where the contract for the sale of securities is made on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

Information

7

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

8

• (1) In section 25 of the Taxes Management Act 1970 (information: chargeable gains) in subsection (4) for the word “jobber” there shall be substituted the words “market maker”.

• (2) At the end of section 25 there shall be inserted—

(10) In this section “market maker”, in relation to shares or securities, means a person who— (a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell shares or securities of the kind concerned at a price specified by him, and (b) is recognised as doing so by the Council of The Stock Exchange.

• (3) Sub-paragraphs (1) and (2) above apply in relation to transactions on or after the day of The Stock Exchange reforms.

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

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

Miscellaneous

9

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

General

10

• (1) In this Schedule “the day of The Stock Exchange reforms” means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

• (2) In this Schedule “recognised investment exchange” means a recognised investment exchange within the meaning of the Financial Services Act 1986.

• (3) Any power to make regulations under this Schedule shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

SCHEDULE 19

PART I — AMENDMENTS OF 1984 ACT

1

After section there shall be inserted the following section—

(3A) (1) Any reference in this Act to a potentially exempt transfer is a reference to a transfer of value— (a) which is made by an individual on or after 18th March 1986; and (b) which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer); and (c) to the extent that it constitutes either a gift to another individual or a gift into an accumulation andmaintenance trust or a disabled trust; but this subsection has effect subject to any provision of this Act which provides that a disposition (or transfer of value) of a particular description is not a potentially exempt transfer. (2) Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) above, as a gift to another individual,— (a) to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes comprised in the estate of that other individual, otherwise than as settled property, or (b) so far as that value is not attributable to property which becomes comprised in the estate of another person, to the extent that, by virtue of the transfer, the estate of that other individual is increased, otherwise than by an increase in the value of settled property comprised in this estate. (3) Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) above, as a gift into an accumulation and maintenance trust or a disabled trust, to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 71 or 89 of this Act applies. (4) A potentially exempt transfer which is made seven years or more before the death of the transferor is an exempt transfer and any other potentially exempt transfer is a chargeable transfer. (5) During the period beginning on the date of a potentially exempt transfer and ending immediately before— (a) the seventh anniversary of that date, or (b) if it is earlier, the death of the transferor, it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer. (6) Where, under any provision of this Act, tax is in any circumstances to be charged as if a trnafer of value had been made, that transfer shall be taken to be a transfer which is not a potentially exempt transfer.

2

• (1) In section 7 (rates of tax), in subsection (1)—

• (a) at the beginning there shall be inserted the words “Subject to subsections (2), (4) and (5) below”;

• (b) for the words “ten years” there shall be substituted “ seven years ”; and

• (c) the word “appropriate” shall be omitted.

• (2) For subsection (2) of that section there shall be substituted the following subsection—

(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 subsection (3) of that section for the words “each of the Tables” there shall be substituted “ Table ”.

• (4) After subsection (3) of that section there shall be inserted the following subsections—

(4) Subject to subsection (5) below, subsection (2) 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 that 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.

3

• (1) In section 8 (indexation) in subsection (1) for the words “new Tables for the Tables” there shall be substituted “ a new Table for the Table ”.

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

• (3) In subsection (2) of that section for the word “Tables”, in each place where it occurs, there shall be substituted “ Table ” and for the words “they replace” there shall be substituted “ it replaces ”.

• (4) In subsection (4) of that section, for the word “Tables” there shall be substituted “ Table ”.

4

In section 9 (transitional provisions on reduction of tax) for the words “new Tables” there shall be substituted “ a new Table ”.

5

In section 19 (annual exemption), after subsection (3) there shall be inserted the following subsection—

(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.

6

After section 26 there shall be inserted the following section—

(26A) A potentially exempt transfer which would (apart from this section) have proved to be a chargeable transfer shall be an exempt transfer to the extent that the value transferred by it is attributable to property which has been or could be designated under section 31(1) below and which, during the period beginning with the date of the transfer and ending with the death of the transferor,— (a) has been disposed of by sale of private treaty to a body mentioned in Schedule 3 to this Act or has been disposed of to such a body otherwise than by sale, or (b) has been disposed of in pursuance of section 230 below.

7

In section 30 (conditionally exempt transfers) after subsection (3) there shall be inserted the following subsections—

(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. (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.

8

• (1) In section 31 (designation and undertakings) after subsection (1) there shall be inserted the following subsection—

(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.

• (8) After subsection (4F) of that section there shall be inserted the following subsection—

(4G) In a case where— (a) the transfer of a 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 147 of the Capital Gains Tax Act 1979 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.

9

In section 32 (chargeable events) in subsection (1) after the words “after the transfer” there shall be inserted “ (or, if the transfer was a potentially exempt transfer, after the death of the transferor) ”.

10

In section 32A (associated properties) in subsection (2) after the words “after the transfer” there shall be inserted “ (or, if the transfer was a potentially exempt transfer, after the death of the transferor) ”.

11

• (1) In section 33 (amount of the charge in relation to conditionally exempt transfers) in subsection (1)(b)—

• (a) in sub-paragraph (i) for the words “under the second Table in Schedule 1 to this Act” there shall be substituted “ in accordance with section 7(2) above ”; and

• (b) in sub-paragraph (ii) for the words “under the appropriate Table” there shall be substituted “ in accordance with the appropriate provision of section 7 above ”.

• (2) For subsection (2) of that section there shall be substituted the following subsections—

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

.

• (3) In subsection (7) of that section at the beginning there shall be inserted the words “ Subject to subsection (8) below ”.

• (4) After that subsection there shall be added the following subsection—

(8) Where after a conditionally exempt trnafer of any property there is a potentially exempt transfer the value transferred by which is w h olly 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.

12

In section 35 (conditional exemption on death before 7th April 1976) in subsection (3) for the words “section 33(7) above, the reference” there shall be substituted “ section 33(7) and (8) above, references ”, and for the words “includes a reference” there shall be substituted “ include references ”.

13

In section 38 (attribution of value to specific gifts) in subsection (6) after the words “section 5(5) above” there shall be inserted “ or by virtue of section 103 of the Finance Act 1986 ” and at the end of that subsection there shall be added “ and, to the extent that any liability of the transferor is abated under the said section 103, that liability shall be treated as a specific gift ”.

14

At the end of section 49 (treatment of interests in possession) there shall be added the following subsection— For text see IHTA 1984 s. 49(3).

15

In section 55 (reversionary interst acquired by beneficiary) at the end of subsection (2) there shall be added “and such a dispostition is not a potentially exempt transfer”.

16

• (1) In section 66 (rate of ten-yearly charge) in subsection (3)(b) for the words “preceding ten years” there shall be substituted “ preceding seven years ”.

• (2) For paragraph (c) of subsection (3) of that section there shall be substituted—

(c) on which tax is charged in accordance with section 7(2) of this Act

.

• (3) In subsection (5)(a) of that section for the word “ten” there shall be substituted “ seven ”.

17

In section 67 (added property etc.) in subsections (3)(b) and (4) for the word “ten” there shall be substituted “ seven ”.

18

• (1) In section 68 (rate before first-year anniversary) in subsection (4)(b) for the word “ten”, in both places where it occurs, there shall be substituted “ seven ”.

• (2) For paragraph (c) of subsection (4) and for paragraph (c) of subsection (6) of that section there shall be substituted—

(c) on which tax is charged in accordance with section 7(2) of this Act

.

• (3) In subsection (6)(b) of that section—

• (a) for the word “ten”, in the first place where it occurs, there shall be substituted “ seven ”; and

• (b) in sub-paragraph (i) for the words “that period of ten years” there shall be substituted “ the period of ten years ending with that day ”.

19

• (1) In section 78 (conditionally exempt occasions) in subsection (4) for the words from “and the appropriate Table” to the end there shall be substituted “ and the appropriate provision of section 7 for the purposes of section 33(1)(b)(ii) is, if the settlement was created on his death, subsection (1) and, if not, subsection (2). ”

• (2) In subsection (5) of that section, in the substituted sub-paragraph (ii) for section 33(1)(b), for the words “under the appropriate Table” there shall be substituted “ in accordance with the appropriate provision of section 7 above. ”

20

At the end of section 98 (effect of alteration of capital of close company etc.) there shall be added the following subsection—

(3) The disposition referred to in subsection (1) above shall be ataken to be one which is not a potentially exempt transfer.

21

After section 113 there shall be inserted the following sections—

(113A) (1) Where any part of the value transferred by a potentially exempt transfer which proves to be a chargeable transfer would (apart from this section) be reduced in accordance with the preceding provisions of this Chapter, it shall not be so reduced unless the conditions in subsection (3) are satisfied. (2) Where— (a) any part of the value transferred by any chargeable transfer, other than a potentially exempt transfer, is reduced in accordance with the preceding provisions of this Chapter, and (b) the transfer is made within seven years of the death of the transferor, then, unless the conditions in subsection (3) are satisfied, the additional tax chargeable by reason of the death shall be calculated as if the value transferred had not been so reduced. (3) The conditions referred to in subsections (1) and (2) above are— (a) that the original property was owned by the transferee throughout the period beginning with the date of the chargeable transfer and ending with the death of the transferor; and (b) that, in relation to a notional transfer of value made by the transferee immediately before the death, the original property would (apart from section 106 above) be relevant business property. (4) If the transferee has dies before the transferor, the reference in subsection (3) above to the death of the transferor shall have effect as a reference to the death of the transferee. (5) If the conditions in subsection (3) above are satisfied only with respect to part of the orginal property, then— (a) in a case falling within subsection (1) above, only a proprtionate part of so much of the value tranferred as is attributable to the original property shall be reduced in accordance with the preceding provisions of this Chapter, and (a) in a case falling within subsection (2) above, the additional tax shall be calculated as if only a proportionate part of so much of the value transferred was attributable to the original property had been so reduced. (6) Where any shares owned by the transferee immediately before the death in question— (a) would under any of the provisions of sections 77 to 86 of the Capital Gains Tax Act 1979 be identified with the original property (or part of it), or (b) were issued to him in consideration of the transfer of a business or interest in a business consisting of the original property (or part of it), they shall be treated for the purposes of this section as if they were the original property (or that part of it). (7) This section has effect subject to section 113B below. (8) In this section— - “the original property” means the property which was relevant business property in relation to the chargeable transfer referred to in subsection (1) or subsection (2) above; and - “the transferee” means the person whose property the original property became on that chargeable transfer or, where on the transfer the original property became or remained settled property in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement. (113B) (1) Subject to subsection (2) below, this section applies where— (a) the transferee has disposed of all or part of the original property before the death of the transferor; and (b) the whole of the consideration received by him for the disposal has been applies by him in acquiring other property (in this section referred to as “the replacement property”). (2) This section does not apply unless— (a) the replacement property is acquired, or binding contract for its acquisition is entered into, within twelve months after the disposal of the original property (or, as the case may be, the part concerned); and (b) the disposal and acquisition are both made in transactions at arm’s length or on terms such as might be expected to be included in a transaction at arm’s length. (3) Where this section applies, the conditions in section 113A(3) above shall be taken to be satisfied in relation ro the original proeprty (or, as the case may be, the part concerned) if— (a) the replacement property is owned by the transferee immediately before the death of the transferor; and (b) throughout the period beginning with the date of the chargeable transfer and ending with the death (disregarding any period between the disposal and acquisition) either the original property or the replacement property was owned by the transferee; and (c) in relation to notional transfer of value made by the transferee immediately before the death, the replacement property would (apart from section 106 above) be relevant business property. (4) If the transferee has dies before the transferor, any reference in subsections (1) to (3) above to the death of the transferor shall have effect as a reference to the death of the transferee. (5) In any case where— (a) all or part of the original property has been disposed of before the death of the transferor or is excluded by section 113 above from being relevant business property in relation to the notional transfer of value referred to in section 113A(b) abvoe, and (b) the replacement property is acquired, or a binding contract for its acquisition is entered into, after the death of the transferor but within twelve months after the disposal of the original property or part, and (c) the transferor dies before the transferee, subsection (3) above shall have effect with the omission of paragraph (a), and as if any reference to a time immediately before the death of the transferor or to the death were a reference to the time when the replacement property is acquired. (6) Section 113A(6) above shall have effect in relation to the replacement property as it has effect in relation to the original property. (7) Where a binding contract for the disposal of any property is entered into at any time before the disposal of the property, the disposal shall be regarded for the purposes of subections (2)(a) and (5)(b) above as taking place at that time. (8) In this section “the original property” and “the transferee” have the same meaning as in section 113A above.

22

After section 124 there shall be inserted the following sections—

(124A) (1) Where any part of the value transferred by a potentially exempt transfer which proves to be a chargeable transfer would (apart from this section) be reduced in accordance with the preceding provisions of this Chapter, it shall be is reduced unless the conditions in subsection (3) below are satisfied. (2) Where— (a) any part of the value transfered by any chargeable transfer, other than a potentially exempt transfer, is reduced in accordance with the preceding provisions of this Chapter, and (b) the transfer is made within seven years of the death of the transferor, then, unless the conditions in subsection (3) below are satisfied, the additional tax chargeable by reason of the death shall be calculated as if the value transferred had not been so reduced. (3) The conditions referred to in subsections (1) and (2) are— (a) that the original property was owned by the transferee throughout the period beginning with the date of the chargeable transfer and ending with the death of the transferor (in this subsection referred to as “the relevant period”) and it is not at the time of the death subject to a binding contract for sale; and (b) except in a case falling within paragraph (c) below, that the original property is agricultural property immediately before the death and has been occupied (by the transferee or another) for the purpsoes of agriculture throughout the relevant period; and (c) where the original property consists of shares in or securities of a company, that throughout the relevant period the agricultural property to which section 116 above applies by virtue of section 122(1) above on the chargeable transfer was owned by the company and occupied (by the company or another) for the purposes of agriculture. (4) If the transferee has died before the transferor, the reference in subsection (3) above to the death of the transferor shall have effect as a reference to the death of the transferee. (5) If the conditions in subsection (3) above are satisfied only with respect to part of the orginal property, then,— (a) in a case falling within subsection (1) abvoe, only a proportionate part of so much of the value transferred as is attributable to the original property shall be reduced in accordance with the preceding provisions of this Chapter, and (b) in a case falling within subsection (2) above, the additional tax shall be calculated as if only a proprtionate part of so much of the value transferred as was attributable to the orginal property had been so reduced. (6) Where any shares owned by the transferee immediately before the death in question— (a) would under any of the provisions of section 77 to 86 of the Capital Gains Tax Act 1979 be identified with the original property (or part of it), or (b) were issued to him in consideration of the transfer of agricultural property consisting of the orginal property or (part of it), they shall be treated for the purposes of this section as if they were the orginal property (or part of it). (7) This section has effect subject to section 124B below. (8) In this section— - “the prginal property” means the property which, in relation to the chargeable transfer referred to in subsection (1) or subsection (2) above, was either agricultural property to which section 116 above applied or shares or securities of a company owning agricultural property to which that section applies by virtue of section 122(1) above; and - “the transferee” means the person whose property the original property became on that chargeable transfer or, where on the transfer the original property became or remained settled property in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement. (124B) (1) Subject to subsection (2) below, this section applies where— (a) the transferee has disposed of all or part of the original property before the death of the transferor; and (b) the whole of the consideration received by him for the disposal has been applied by him in acquiring other property (in this section referred to as “the replacement property”). (2) This section does not apply unless— (a) the replacement property is acquired, or binding contract for its acquisition is entered into, within twelve months after the disposal of the original property (or, as the case may be, the part concerned); and (b) the disposal and acquisition are both made in transactions at arm’s length or on terms such as might be expected to be included in a transaction at arm’s length. (3) Where this section applies, the conditions in section 124A(3) above shall be taken to be satisfied in relation to the original property (or, as the case may be, the part concerned) if— (a) the replacement property is owned by the transferee immediately before the death of the transferor and is not at that time subject to a binding contract for sale; and (b) throughout the period beginning with the date of the chargeable transfer and ending with the disposal, the original property was owned by the transferee and occupied (by the transferee or another) for the purposes of agriculture; and (c) throughout the period beginning with the date when the transferee acquired the replacement property and ending with the death, the replacement property was owned by the transferee and occupied (by the transferee or another) for the purposes of agriculture; and (d) the replacement property is agricultural property immediately before the death. (4) If the transferee has dies before the transferor, any reference in subsections (1) to (3) above to the death of the transferor shall have effect as a reference to the death of the transferee. (5) In any case where— (a) all or part of the original property has been disposed of before the death of the transferor or is subject to a binding contract for sale at the time of the death, and (b) the replacement property is acquired, or a binding contract for its acquisition is entered into, after the death of the transferor but within twelve months after the disposal of the original property or part, and (c) the transferor dies before the transferee, subsection (3) above shall have effect with the omission of paragraphs (a) and (c), and as if any reference to a time immediately before the death of the transferor were a reference to the time when the replacement property is acquired. (6) Section 124A(6) above shall have effect in relation to the replacement property as it has effect in relation to the original property. (7) Where a binding contract for the disposal of any property is entered into at any time before the disposal of the property, the disposal shall be regarded for the purposes of subsections (2)(a) and (5)(b) above as taking place at that time. (8) In this section “the original property” and “the transferee” have the same meaning as in section 124A above.

23

• (1) In section 131 (relief in respect of additional tax payable on transfers within three years of death), in subsection (1) for the words from “(by virtue” to “transfer and” there shall be substituted “ because of the transferor’s death within seven years of the transfer, tax becomes chargeable in respect of the value transferred by a potentially exempt transfer or (by virtue of section 7(4) above) additional tax becomes chargeable in respect of the value transferred by any other chargeable transfer and (in either case) ”.

• (2) In subsection (2) of that section for the words “additional tax” in each place where they occur, there shall be substituted “ the tax or, as the case may be, additional tax ”.

• (3) After that subsection there shall be inserted the following subsection—

(2A) Where so much of the value transferred as is attributable to the value, or agricultural value, of the transferred property is reduced by any percentage (in this subsection referred to as “the appropriate percentage”), in accordance with Chapter I of thi Part of this Act, references in subsection (2) above to the market value of the transferred property at any time shall have effect— (a) in a case within chapter I, as references to that market value reduced by the appropriate percentage; and (b) in a case within Chapter II, as references to that market value less the appropriate percentage of the agricultural value of the transferred property at that time.

24

In section 142 (alteration of dispositions taking effect on death) at the end of subsection (5) there shall be added “ or section 102 of the Finance Act 1986 ”.

25

Sections 148 and 149 (exemptions for mutual transfers) shall not apply if the donee’s transfer (as defined in section 148) is made on or after 18th March 1986.

26

In section 199 (liability for tax etc. on dispositions by transferor) for subsection (2) there shall be substituted the following subsection—

(2) Subsection (1)(a) above shall apply in relation to— (a) the tax on the value transferred by a potentially exempt transfer; and (b) so much of the tax on the value transferred by any other chargeable transfer made within seven years of the transferor’s death as exceeds what it would have been had the transferor died more than seven years after the transfer, with the substitution for the reference to the transferor of a reference to his personal representatives.

27

In section 201 (liability for tax in respect of settled property), in subsection (2) for the words “three years”, in each place where they occur, there shall be substituted “ seven years ”.

28

• (1) In section 204 (limitation of liability), subsection (4) shall be omitted.

• (2) In subsection (6)(a) of that section, after the word “transferor” there shall be inserted “ or personal representative of the transferor ”.

• (3) For subsection (7) of that section there shall be substituted the following subsections—

(7>) Where the tax exceeds what it would have been had the transferor dies more than seven years after the transfer, subsection (6) above shall not apply in relation to the excess. (8) A person liable by virtue of section 199(2) above for any tax as personal representative of the transferor shall be liable only to the extent that either— (a) in consequence of subsections (2), (3) and (5) above, no person falling within paragraphs (b) to (d) of section 199(1) above is liable for the tax, or (b) the tax remains unpaid twelve months after the end of the month in which the death of the transferor occurs, and, subject to that, shall be liable to the extent of the assets mentioned in subsection (1) above. (9) Where by virtue of subsection (3) of section 102 of the Finance Act 1986 the estate of a deceased person is treated as including property which would not apart from that subsection form part of his estate, a person shall be liable under section 200(1)(a) above as personal representatice for tax attributable to the value of the property only if the tax remains unpaid twelve months after the end of the month in which the death occurs and, subject to that, only to the extent of the assets mentioned in subsection (1) above.

29

• (1) In section 216 (delivery of accounts) in subsection (1) after paragraph (b) there shall be inserted the following paragraphs—

(bb) is liable under section 199(1)(b) above for tax on the value transferred by a potentially exempt transfer which proves to be a chargeable transfer, or would be so liable if tax were chargeable on that value, or (bc) is liable under section 200(1)(c) above for tax on the value transferred by a chargeable transfer made on death, so far as the tax is attributable to the value of the property which, apart from section 102(3) of the Finance Act 1986, would not form part of the deceased’s estate, or would be so liable if tax were chargeable on the value transferred on the death, or

• (2) In subsection (3) of that section after the words “his death” there shall be inserted “ other than property which would not, apart from section 102(3) of the Finance Act 1986, form part of his estate ”.

• (3) In subsection (6) of that section after paragraph (a) there shall be inserted the following paragraphs—

(aa) in the case of an account to be delivered by a person within subsection (1)(bb) above, before the expiration ot the period of twelve months from the end of the month in which the death occurs; (ab) in the case of an account to be delivered by a person within subsection (1)(bc) above, before the expiration of the period of twelve months from the end of the month in which the death occurs

.

30

• (1) In section 226 (payment: general rules), in subsection (3) for the words “three years”, in each place where they occur, there shall be substituted “ seven years ”.

• (2) After subsection (3) of that subsection there shall be inserted the following subsections—

(3A) Without prejudice to subsection (3) above, the tax chargeable on the value transferred by a potentially exempt transfer which proves to be a chargeable transfer shall be due six months after the end of the month in which the transferor’s death occurs. (3B) So much (if any) of the tax chargeable on the value transferred by a chargeable transfer made under Chapter III of Part III of this Act within the period of seven years ending with the settlor’s death as exceeds what it would have been had the settllor died more than seven years after the date of the transfer shall be due six months after the end of the month in which the death occurs.

31

• (1) In section 227 (payment by instalments) after subsection (1) there shall be inserted the following subsections—

(1A) Subsection (1) above does not apply to tax payable on the value transferred by a potentially exempt transfer which proves to be a chargeable transfer, except to the extent that the tax is attributable to qualifying property which is owned by the transferee immediately before the death of the transferor (or, if earlier, his own death). (1B) In subsection (1A) above “the transferee” means the person whose property the qualifying property became on the transfer or, where on the transfer the qualifying property became comprised in a settlement in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement.

• (2) In subsection (5) of that section after the words “subsection (1)(b) above” there shall be inserted “ other than a case within subsection (1A) above where the transferee dies before the transferor ”.

32

In section 233 (interest on unpaid tax) in subsection (2) for paragraphs (a) and (b) there shall be substituted— For substitution see IHTA 1985 s. 233(2)(a) and (b)

33

• (1) In section 236 (application of section 233 in special cases etc.), in subsection (1)(a), for the words “three years”, in each place where they occur, there shall be substituted “ seven years ”.

• (2) After subsection (1) of that section there shall be inserted the following subsection—

(1A) Section 233 above shall apply in relation to the amount (if any) by which— (a) the tax chargeable on the value transferred by a chargeable transfer made under Chapter III of Part III of this Act within the period of seven years ending with the settlor’s death, exceeds (b) what that tax would have been had the settlor dies more than seven years after the date of the transfer, as if the chargeable transfer had been made on the death of the settlor.

34

In section 237 (imposition of charge) after subsection (3) there shall be inserted the following subsection—

(3A) In the case of a potentially exempt transfer which proves to be a chargeable transfer— (a) property concerned, or an interest in property concerned, which has been disposed of to a purchaser before the transferor’s death is not subject to the Inland Revenue charge, but (b) property concerned which has been otherwise disposed of before the death and property which at the death represents any property or interest falling within paragraph (a) above shall be subject to the charge; and in this subsection “property concerned” means property to the value of which the value transferred by the transfer is wholly or partly attributable.

35

In section 239 (certificates of discharge) after subsection (2) there shallbe inserted the following subsection—

(2A) An application under subsection (1) or (2) above with respect to tax which is or may become chargeable on the value trnaferred by a potentially exempt transfer may not be made before the expiration of two years from the death of the transferor (except where the Board think fit to entertain the application an earlier time after the death).

36

For Schedule 1 (rates of tax) there shall be substituted—

SCHEDULE 1

Portion	of value	Rate of tax
Lower limit	Upper limit	Per cent
£	£
0	71,000	Nil
71,000	95,000	30
95,000	129,000	35
129,000	164,000	40
164,000	206,000	45
206,000	257,000	50
257,000	317,000	55
317,000	–	60

37

• (1) In Schedule 2 (provisions applying on reduction of tax),—

• (a) for the words “new Tables”, wherever occurring, there shall be substituted “ a new Table ”; and

• (b) for the words “the Tables”, wherver occurring, there shall be substituted “ the Table ”.

• (2) In paragraph (1)(b) of that Schedule for the word “come” there shall be substituted “ comes ”.

• (3) After paragraph 1 of that Schedule there shall be inserted the following paragraph—

(1A) Where a person who has made a potentially exempt transfer before a reduction dies after that reduction (or after that and one or more subsequent reductions) and within the period of seven years beginning with the date of the transfer, tax shall be chargeable by reason of the transfer proving to be a chargeable transfer only if, and to the extent that, it would have been so chargeable if the Table in Schedule 1 as substituted by that reduction (or by the most recent of those reductions) had applies to that transfer.

• (4) In paragraph 2 of that Schedule,—

• (a) for the words “three years”, wherever occurring, there shall be substituted “ seven years ”; and

• (b) after the words “chargeable transfer” there shall be inserted “ (other than a potentially exempt transfer) ”; and

• (c) the words “the first of” shall be omitted.

• (5) In paragraph 3 of that Schedule, the words “the second of” shall be omitted.

• (6) In paragraph 4 of that Schedule, the words “the first of” shall be omitted.

38

• (1) In Schedule 4 (maintenance funds for historic buildings etc.) in paragraph 14 (rates of charge) in sub-paragraphs (1) to (3), for the words “under the appropriate Table”, wherever occurring, there shall be substituted “ in accordance with the appropriate provision of section 7 of this Act ”.

• (2) After sub-paragraph (1) of that paragraph there shall be inserted the following sub-paragraph—

(1A) The rate of tax determined under sub-paragraph (1) above in respect of any occasion shall not be affected by the death of the settlor after that occasion.

• (3) In sub-paragraph (6) of that paragraph for the words “ten years” there shall be substituted “ seven years ”.

• (4) For sub-paragraph (9) of that paragraph there shall be substituted the following sub-paragraph—

(9) For the purposes of sub-paragraph (1) above the appropriate provision of section 7 of this Act is subsection (2), and for the purposes of sub-paragraphs (2) and (3) above it is (if the settlement was made on death) subsection (1) and (if not) subsection (2).

39

In Schedule 6 (transition from estate duty) in paragraph 4(3) after the words “sections 33(7)” there shall be inserted the words “ and (8). ”

PART II — TRANSITIONAL PROVISIONS

40

• (1) Notwithstanding that Part of this Schedule has effect with respect to events occurring on or after 18th March 1986, where a death or other event occurs on or after that date, nothing in that Part shall affect the tax chargeable on a transfer of value occurring before that date.

• (2) Sub-paragraph (1) above does not authorise the making of a claim under section 149 of the 1984 Act where the donee’s transfer, as defined in section 148 of that Act, occurs on or after 18th March 1986.

41

Where tax is chargeable under section 32 or section 32A of the 1984 Act by reason of a chargeable event occurring on or after 18th March 1986 and the rate or rates at which it is charged fall to be determined under the provisions of section 33(1)(b)(ii) of the 1984 Act by reference to a death which occurred before that date, those provisions shall apply (subject to paragraph 5 of Schedule 2 to that Act) as if the amendments of section 7 of, and Schedule 1 to, that Act contained in Part I of this Schedule had been in force at the time of the death.

42