The Inheritance Tax (Double Charges Relief) Regulations 1987

Made: 30th June 1987

Laid before the House of Commons: 1st July 1987

Coming into force: 22nd July 1987

The Commissioners of Inland Revenue, in exercise of the powers conferred on them by section 104 of the Finance Act 1986[^f00001], hereby make the following Regulations.

Citation and commencement

1

These Regulations may be cited as the Inheritance Tax (Double Charges Relief) Regulations 1987 and shall come into force on 22nd July 1987.

Interpretation

2

In these Regulations unless the context otherwise requires—

• “PET” means potentially exempt transfer;

• “property” includes part of any property;

• “the 1984 Act” means the Inheritance Tax Act 1984[^f00002];

• “the 1986 Act” means Part V of the Finance Act 1986;

• “section” means section of the 1984 Act.

Introductory

3

These Regulations provide for the avoidance, to the extent specified, of double charges to tax arising with respect to specified transfers of value made, and other events occurring, on or after 18th March 1986.

Double charges—potentially exempt transfers and death

4

• (1) This regulation applies in the circumstances to which paragraph (a) of section 104(1) of the 1986 Act refers where the conditions (“specified conditions”) of paragraph (2) are fulfilled.

• (2) The specified conditions to which paragraph (1) refers are—

• (a) an individual (“the deceased”) makes a transfer of value to a person (“the transferee”) which is a PET,

• (b) the transfer is made on or after 18th March 1986,

• (c) the transfer proves to be a chargeable transfer, and

• (d) the deceased immediately before his death was beneficially entitled to property to which paragraph (3) refers.

• (3) The property to which paragraph (2)(d) refers is property—

• (a) which the deceased, after making the PET to which paragraph (2)(a) refers, acquired from the transferee otherwise than for full consideration in money or money’s worth,

• (b) which is property which was transferred to the transferee by the PET to which paragraph (2)(a) refers or which is property directly or indirectly representing that property, and

• (c) which is property comprised in the estate of the deceased immediately before his death (within the meaning of section 5(1)), value attributable to which is transferred by a chargeable transfer (under section 4).

• (4) Where the specified conditions are fulfilled there shall be calculated, separately in accordance with sub-paragraphs (a) and (b), the total tax chargeable as a consequence of the death of the deceased—

• (a) disregarding so much of the value transferred by the PET to which paragraph (2)(a) refers as is attributable to the property, value of which is transferred by the chargeable transfer to which paragraph (3)(c) refers, and

• (b) disregarding so much of the value transferred by the chargeable transfer to which paragraph (3)(c) refers as is attributable to the property, value of which is transferred by the PET to which paragraph (2)(a) refers.

• (5)

• (a) Whichever of the two amounts of tax calculated under paragraph (4)(a) or (b) is the lower amount shall be treated as reduced to nil but, subject to sub-paragraph (b), the higher amount shall be payable,

• (b) where the amount calculated under paragraph (4)(a) is higher than the amount calculated under paragraph (4)(b)—

• (i) so much of the tax chargeable on the value transferred by the chargeable transfer to which paragraph (2)(c) refers as is attributable to the amount of that value which falls to be disregarded by virtue of paragraph (ii) shall be treated as a nil amount, and

• (ii) for all the purposes of the 1984 Act so much of the value transferred by the PET to which paragraph (2)(a) refers as is attributable to the property to which paragraph (3)(c) refers shall be disregarded.

• (6) Part I of the Schedule to these Regulations provides an example of the operation of this regulation.

Double charges—gifts with reservation and death

5

• (1) This regulation applies in the circumstances to which paragraph (b) of section 104(1) of the 1986 Act refers where the conditions (“specified conditions”) of paragraph (2) are fulfilled.

• (2) The specified conditions to which paragraph (1) refers are—

• (a) an individual (“the deceased”) makes a transfer of value by way of gift of property,

• (b) the transfer is made on or after 18th March 1986,

• (c) the transfer is or proves to be a chargeable transfer,

• (d) the deceased dies on or after 18th March 1986,

• (e) the property in relation to the gift and the deceased is property subject to a reservation (within the meaning of section 102 of the 1986 Act),

• (f)

• (i) the property is by virtue of section 102(3) of the 1986 Act treated for the purposes of the 1984 Act as property to which the deceased was beneficially entitled immediately before his death, or,

• (ii) the property ceases to be property subject to a reservation and is the subject of a PET by virtue of section 102(4) of the 1986 Act, and

• (g)

• (i) the property is comprised in the estate of the deceased immediately before his death (within the meaning of section 5(1)) and value attributable to it is transferred by a chargeable transfer (under section 4), or

• (ii) the property is property transferred by the PET to which sub-paragraph (f)(ii) refers, value attributable to which is transferred by a chargeable transfer.

• (3) Where the specified conditions are fulfilled there shall be calculated, separately in accordance with sub-paragraphs (a) and (b), the total tax chargeable as a consequence of the death of the deceased—

• (a) disregarding so much of the value transferred by the transfer of value to which paragraph (2)(a) refers as is attributable to property to which paragraph (2)(g) refers, and

• (b) disregarding so much of the value of property to which paragraph (2)(g) refers as is attributable to property to which paragraph (2)(a) refers.

• (4) Where the amount calculated under paragraph (3)(a) is higher than the amount calculated under paragraph (3)(b)—

• (a) only so much of that higher amount shall be payable as remains after deducting, as a credit, from the amount comprised in that higher amount which is attributable to the value of the property to which paragraph (2)(g) refers, a sum (not exceeding the amount so attributable) equal to so much of the tax paid—

• (i) as became payable before the death of the deceased, and

• (ii) as is attributable to the value disregarded under paragraph (3)(a), and

• (b) so much of the value transferred by the transfer of value to which paragraph (2)(a) refers as is attributable to the property to which paragraph (2)(g) refers shall (except in relation to chargeable transfers which were chargeable to tax, when made by the deceased, for the purposes of an occasion which occurred before the death of the deceased on which tax was chargeable under section 64 or 65) be treated as reduced to a nil amount for all the purposes of the 1984 Act.

• (5) Where the amount calculated under paragraph (3)(a) is less than the amount calculated under paragraph (3)(b) the value of the property to which paragraph (2)(g) refers shall be reduced to nil for all the purposes of the 1984 Act.

• (6) For the purposes of the interpretation and application of this regulation section 102 of and Schedule 20 to the 1986 Act shall apply.

• (7) Part II of the Schedule to these Regulations provides examples of the operation of this regulation.

Double charges—liabilities subject to abatement and death

6

• (1) This regulation applies in the circumstances to which paragraph (c) of section 104(1) of the 1986 Act refers where the conditions (“specified conditions”) of paragraph (2) are fulfilled.

• (2) The specified conditions to which paragraph (1) refers are—

• (a) a transfer of value which is or proves to be a chargeable transfer (“the transfer”) is made on or after 18th March 1986 by an individual (“the deceased”) by virtue of which the estate of the transferee is increased or by virtue of which property becomes comprised in a settlement of which the transferee is a trustee, and

• (b) at any time before his death the deceased incurs a liability to the transferee (“the liability”) which is a liability subject to abatement under the provisions of section 103 of the 1986 Act in determining the value transferred by a chargeable transfer (under section 4).

• (3) Where the specified conditions are fulfilled there shall be calculated, separately in accordance with sub-paragraphs (a) and (b), the total tax chargeable as a consequence of the death of the deceased—

• (a) disregarding so much of the value transferred by the transfer—

• (i) as is attributable to the property by reference to which the liability falls to be abated, and

• (ii) as is equal to the amount of the abatement of the liability, and

• (b) taking account both of the value transferred by the transfer and of the liability.

• (4) shall (except in relation to chargeable transfers which were chargeable to tax, when made by the deceased, for the purposes of an occasion which occurred before the death of the deceased on which tax was chargeable under section 64 or 65) be treated as reduced to a nil amount for all the purposes of the 1984 Act.

• (a) Whichever of the two amounts of tax calculated under paragraph (3)(a) or (b) is the lower amount shall be treated as reduced to nil but, subject to sub-paragraph (b), the higher amount shall be payable,

• (b) where the amount calculated under paragraph (3)(a) is higher than the amount calculated under paragraph (3)(b)—

• (i) only so much of that higher amount shall be payable as remains after deducting, as a credit, from that amount a sum equal to so much of the tax paid—

• (a) as became payable before the death of the deceased, and

• (b) as is attributable to the value disregarded under paragraph (3)(a), and

• (c) as does not exceed the difference between the amount of tax calculated under paragraph (3)(a) and the amount of tax that would have fallen to be calculated under paragraph (3)(b) if the liability had been taken into account, and

• (ii) so much of the value transferred by the transfer to which paragraph (2)(a) refers—

• (a) as is attributable to property by reference to which the liability is abated, and

• (b) as is equal to the amount of the abatement of the liability,

• (5) Where there is a number of transfers made by the deceased which are relevant to the liability to which paragraph (2)(b) applies the provisions of this regulation shall apply to those transfers taking them in reverse order of their making, that is to say, taking the latest first and the earliest last, but only to the extent that in aggregate the value of those transfers does not exceed the amount of the abatement to which paragraph (2)(b) refers.

• (6) Part III of the Schedule to these Regulations provides examples of the operation of this regulation.

Double Charges—chargeable transfers and death

7

• (1) This regulation applies in the circumstances specified (by this regulation) for the purposes of paragraph (d) of section 104(1) of the 1986 Act (being circumstances which appear to the Board to be similar to those referred to in paragraphs (a) to (c) of that subsection) where the conditions (“specified conditions”) of paragraph (2) are fulfilled.

• (2) The specified conditions to which paragraph (1) refers are—

• (a) an individual (“the deceased”) makes a transfer of value to a person (“the transferee”) which is a chargeable transfer,

• (b) the transfer is made on or after 18th March 1986,

• (c) the deceased dies within 7 years after that chargeable transfer is made, and

• (d) the deceased immediately before his death was beneficially entitled to property to which paragraph (3) refers.

• (3) The property to which paragraph (2)(d) refers is property—

• (a) which the deceased, after making the chargeable transfer to which paragraph (2)(a) refers, acquired from the transferee otherwise than for full consideration in money or money’s worth,

• (b) which was transferred to the transferee by the chargeable transfer to which paragraph (2)(a) refers or which is property directly or indirectly representing that property, and

• (c) which is property comprised in the estate of the deceased immediately before his death (within the meaning of section 5(1)), value attributable to which is transferred by a chargeable transfer (under section 4).

• (4) Where the specified conditions are fulfilled there shall be calculated, separately in accordance with sub-paragraphs (a) and (b), the total tax chargeable as a consequence of the death of the deceased—

• (a) disregarding so much of the value transferred by the chargeable transfer to which paragraph (2)(a) refers as is attributable to the property, value of which is transferred by the chargeable transfer to which paragraph (3)(c) refers, and

• (b) disregarding so much of the value transferred by the chargeable transfer to which paragraph (3)(c) refers as is attributable to the property, value of which is transferred by the chargeable transfer to which paragraph (2)(a) refers.

• (5)

• (a) Whichever of the two amounts of tax calculated under paragraph (4)(a) or (b) is the lower amount shall be treated as reduced to nil but, subject to sub-paragraph (b), the higher amount shall be payable,

• (b) where the amount calculated under paragraph (4)(a) is higher than the amount calculated under paragraph (4)(b)—

• (i) only so much of that higher amount shall be payable as remains after deducting, as a credit, from the amount comprised in that higher amount which is attributable to the value of the property to which paragraph (2)(d) refers, a sum (not exceeding the amount so attributable) equal to so much of the tax paid—

• (a) as became payable before the death of the deceased, and

• (b) as is attributable to the value disregarded under paragraph (4)(a), and

• (ii) so much of the value transferred by the chargeable transfer to which paragraph (2)(a) refers as is attributable to the property to which paragraph (3)(c) refers shall (except for the purposes of an occasion which occurred before the death of the deceased on which tax was chargeable under section 64 or 65) be treated as reduced to a nil amount for all the purposes of the 1984 Act.

• (6) Part IV of the Schedule to these Regulations provides an example of the operation of this regulation.

Equal calculations of tax—special rule

8

Where the total tax chargeable as a consequence of death under the two separate calculations provided for by any of regulation 4(4), 5(3), 6(3) or 7(4) is equal in amount the first of those calculations shall be treated as producing a higher amount for the purposes of the regulation concerned.

Schedule and saving

9

The Schedule to these Regulations shall have effect only for providing examples of the operation of these Regulations and, in the event of any conflict between the Schedule and the Regulations, the Regulations shall prevail.

SCHEDULE — INTRODUCTORY

1

This Schedule provides examples of the operation of the Regulations.

2

In this Schedule—

• “cumulation” means the inclusion of the total chargeable transfers made by the transferor in the 7 years preceding the current transfer;

• “GWR” means gift with reservation;

• “taper relief” means the reduction in tax provided under section 7(4) of the 1984 Act, inserted by paragraph 2(4) of Schedule 19 to the 1986 Act.

3

Except where otherwise stated, the examples assume that—

• tax rates and bands remain as at 18 March 1987;

• the transferor has made no other transfers than those shown in the examples;

• no exemptions (including annual exemption) or reliefs apply to the value transferred by the relevant transfer; and

• “grossing up” does not apply in determining any lifetime tax (the tax is not borne by the transferor).

PART I

Regulation 4: Example

First calculation under reg. 4 (4)(a)

Second calculation under reg. 4 (4)(b)

Result

PART II

Regulation 5: Example 1

First calculation under reg. 5 (3)(a)

Second calculation under reg. 5 (3)(b)

Result

Regulation 5: Example 2

PART III

Regulation 6: Example 1

First calculation under reg. 6 (3)(a)

Second calculation under reg. 6 (3)(b)

Result

Regulation 6: Example 2

Regulation 6: Example 3

Regulation 6: Example 4

PART IV

Regulation 7: Example

First calculation under reg. 7 (4)(a)

Second calculation under reg. 7 (4)(b)

Result

Signed

D.B. Rogers — A.J.G. Isaac — Two of the Commissioners of Inland Revenue — 30th June 1987

Explanatory note

(This note is not part of the Regulations)

The Finance Act 1986 by the provisions of section 104 empowered the Board of Inland Revenue to make provision by regulations for avoiding in certain circumstances double charges to inheritance tax in respect of transfers of value and other events occuring on or after 18 March 1986.

These Regulations provide for the avoidance of double charges arising in specified circumstances.

Regulation 1 provides the title and commencement date.

Regulation 2 contains definitions.

Regulation 3 describes the scope of the Regulations.

Regulation 4 provides for the avoidance of a double charge where property given by a potentially exempt transfer (PET) is subsequently returned (otherwise than for full consideration) by the donee to the transferor, and as a result of the transferor’s death both that property and the PET become chargeable to tax. If charging the property as part of the death estate produces a higher amount of tax than would be payable if the charge on the PET was taken instead, the value transferred by the original transfer (the PET) is reduced by reference to the amount of the value of that property which is included in the chargeable transfer on the death. Conversely the PET is charged if that produces the higher amount of tax, with a corresponding reduction in the value of that property which is included in the chargeable transfer on the death. To avoid the value of the same property entering twice into the tax calculations this reduction applies for all purposes of the tax.

Regulation 5 provides for the avoidance of a double charge where there is a transfer of value by way of gift of property which is or subsequently becomes a chargeable transfer, and the property is (by virtue of the provisions relating to gifts with reservation) subject to a further transfer which is chargeable as a result of the transferor’s death. As under regulation 4, whichever transfer produces the higher amount of tax as a result of the death remains chargeable and the value of the other transfer is reduced by reference to the value of the transfer which produced that amount. However this reduction in value does not apply for the purposes of any discretionary trust charges arising before the transferor’s death if the transfer by way of gift was chargeable to tax when it was made. Further, provision is made for credit to be given on account of any tax already paid on the transfer by way of gift against so much of the tax payable on the other transfer as relates to the value of the property in question.

Regulation 6 provides for the avoidance of a double charge where a transfer of value is or subsequently becomes a chargeable transfer, and at the transferor’s death his estate owes to the transferee a debt which (under the rules relating to such liabilities) falls to be abated or disallowed in determining the value of the estate chargeable on the death. Two separate calculations of tax payable as a result of the death are made. In the first, the amount of the transfer of value is reduced by the amount of the debt which is disallowed or abated, and in the second, the amount of the transfer of value and of the debt are both taken into account. The higher amount of tax is payable, but is given either by reducing the value of the transfer of value or by allowing the debt and charging the transfer of value in full. As under regulation 5, the reduction in value does not apply for the purposes of any charges on discretionary trusts arising before the death if the transfer of value was a chargeable transfer when it was made. Credit is allowed for some or all of the tax already paid on that transfer against the tax payable on the transferor’s estate at death.

Regulation 7 provides for the avoidance of a double charge where property given by a transfer of value which is chargeable when made, is returned (otherwise than for full consideration) by the donee to the transferor, and that property is also chargeable as part of the transferor’s estate on his death. It provides the same relief as is provided under regulation 4 in the case where the transfer of value was a PET when it was made, but credit is available for tax already paid. The reduction in value does not apply for the purposes of discretionary trust charges arising before the death.

Regulation 8 provides a rule to determine which of two equal amounts under regulation 4(4), 5(3), 6(3) or 7(4) is to be treated as the higher amount for the purposes of each of those regulations.

Regulation 9 introduces the Schedule which provides examples of the operation of these Regulations.

Footnotes

[^f00001]: 1986 c. 41.

[^f00002]: 1984 c. 51; by virtue of section 100(1) and (2) of the Finance Act 1986, on and after 25th July 1986 the Capital Transfer Tax Act 1984 may be cited as the Inheritance Tax Act 1984, and any reference in that Act to capital transfer tax is to have effect as a reference to inheritance tax, except where the reference relates to a liability arising before 25th July 1986.

[^f01001]: If, after allowing any successive charges relief, the second calculation gives higher amount of tax, 1987 PET will be charged and tax on other transfers will be as in second calculation.