Inheritance Tax Act 1984

RatesU.K.

7 Rates.U.K.

(1)[F1Subject to subsections (2), (4) and (5) below] [F2and to [F3section 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 [F4seven years] ending with the date of the transfer, at the rate or rates applicable to that value under the . . . F5 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.

[F6(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 [F7the 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.

[F8(4)Subject to subsection (5) below, subsection (2) above does not apply in the case of a chargeable transfer made at any time within the period of seven years ending with the death of the transferor but, in the case of a chargeable transfer made within that period but more than three years before the death, the tax charged on the value transferred shall be charged at the following percentage of the rate or rates referred to in subsection (1) above—

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

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

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

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

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

8 Indexation of rate bands.U.K.

(1)If the [F9consumer prices index for the month of September in any year] is higher than it was for the [F10previous 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 [F11a new Table for the Table] applying (whether by virtue of this section or otherwise) to earlier chargeable transfers.

F12(1A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)The new [F13Table] shall differ from the [F13Table] 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 [F14consumer 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.

[F15(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 [F101994] 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 [F16Table] in Schedule 1 to this Act; and any such order shall be made by statutory instrument.

[F178ATransfer of unused nil-rate band between spouses and civil partnersU.K.

(1)This section applies where—

(a)immediately before the death of a person (a “deceased person”), the deceased person had a spouse or civil partner (“the survivor”), and

(b)the deceased person had unused nil-rate band on death.

(2)A person has unused nil-rate band on death if—

(3)Where a claim is made under this section, the nil-rate band maximum at the time of the survivor's death is to be treated for the purposes of the charge to tax on the death of the survivor as increased by the percentage specified in subsection (4) below (but subject to subsection (5) and section 8C below).

(4)That percentage is—

(5)If (apart from this subsection) the amount of the increase in the nil-rate band maximum at the time of the survivor's death effected by this section would exceed the amount of that nil-rate band maximum, the amount of the increase is limited to the amount of that nil-rate band maximum.

(6)Subsection (5) above may apply either—

(a)because the percentage mentioned in subsection (4) above (as reduced under section 8C below where that section applies) is more than 100 because of the amount by which M is greater than VT in the case of one deceased person, or

(b)because this section applies in relation to the survivor by reference to the death of more than one person who had unused nil-rate band on death.

(7)In this Act “nil-rate band maximum” means the amount shown in the second column in the first row of the Table in Schedule 1 to this Act (upper limit of portion of value charged at rate of nil per cent.) and in the first column in the second row of that Table (lower limit of portion charged at next rate).

8BClaims under section 8AU.K.

(1)A claim under section 8A above may be made—

(a)by the personal representatives of the survivor within the permitted period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on the survivor's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(2)If no claim under section 8A above has been made in relation to a person (P) by reference to whose death that section applies in relation to the survivor, the claim under that section in relation to the survivor may include a claim under that section in relation to P if that does not affect the tax chargeable on the value transferred by the chargeable transfer of value made on P's death.

(3)In subsection (1)(a) above “the permitted period” means—

(a)the period of two years from the end of the month in which the survivor dies or (if it ends later) the period of three months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(4)A claim made within either of the periods mentioned in subsection (3)(a) above may be withdrawn no later than one month after the end of the period concerned.

8CSection 8A and subsequent chargesU.K.

(1)This section applies where—

(a)the conditions in subsection (1)(a) and (b) of section 8A above are met, and

(b)after the death of the deceased person, tax is charged on an amount under any of sections 32, 32A and 126 below by reference to the rate or rates that would have been applicable to the amount if it were included in the value transferred by the chargeable transfer made (under section 4 above) on the deceased person's death.

(2)If the tax is charged before the death of the survivor, the percentage referred to in subsection (3) of section 8A above is (instead of that specified in subsection (4) of that section)—

(3)If this section has applied by reason of a previous event or events, the reference in subsection (2) to the fraction

is to the aggregate of that fraction in respect of the current event and the previous event (or each of the previous events).

(4)If the tax is charged after the death of the survivor, it is charged as if the personal nil-rate band maximum of the deceased person were appropriately reduced.

(5)In subsection (4) above—

• “the personal nil-rate band maximum of the deceased person” is the nil rate band maximum which is treated by Schedule 2 to this Act as applying in relation to the deceased person's death, increased in accordance with section 8A above where that section effected an increase in that nil-rate band maximum in the case of the deceased person (as survivor of another deceased person), and

• “appropriately reduced” means reduced by the amount (if any) by which the amount on which tax was charged at the rate of nil per cent. on the death of the survivor was increased by reason of the operation of section 8A above by virtue of the position of the deceased person.]

[F198DExtra nil-rate band on death if interest in home goes to descendants etcU.K.

(1)Subsections (2) and (3) apply for the purpose of calculating the amount of the charge to tax under section 4 on a person's death if the person dies on or after 6 April 2017.

(2)If the person's residence nil-rate amount is greater than nil, the portion of VT that does not exceed the person's residence nil-rate amount is charged at the rate of 0%.

(3)References in section 7(1) to the value transferred by the chargeable transfer under section 4 on the person's death are to be read as references to the remainder (if any) of VT.

(4)The person's residence nil-rate amount is calculated in accordance with sections 8E to 8G.

(5)For the purposes of those sections and this section—

(a)the “residential enhancement” is—

(i)£100,000 for the tax year 2017-18,

(ii)£125,000 for the tax year 2018-19,

(iii)£150,000 for the tax year 2019-20, and

(iv)£175,000 for the tax year 2020-21 and subsequent tax years,

but this is subject to subsections (6) and (7),

(b)the “taper threshold” is £2,000,000 for the tax year 2017-18 and subsequent tax years, but this is subject to subsections (6) and (7),

(c)TT is the taper threshold at the person's death,

(d)E is the value of the person's estate immediately before the person's death,

(e)VT is the value transferred by the chargeable transfer under section 4 on the person's death,

(f)the person's “default allowance” is the total of—

(i)the residential enhancement at the person's death, and

(ii)the person's brought-forward allowance (see section 8G), and

(g)the person's “adjusted allowance” is—

(i)the person's default allowance, less

(ii)the amount given by—

but is nil if that amount is greater than the person's default allowance.

(6)Subsection (7) applies if—

(a)the consumer prices index for the month of September in any tax year (“the prior tax year”) is higher than it was for the previous September, and

(b)the prior tax year is the tax year 2020-21 or a later tax year.

(7)Unless Parliament otherwise determines, the amount of each of—

(a)the residential enhancement for the tax year following the prior tax year, and

(b)the taper threshold for that following tax year,

is its amount for the prior tax year increased by the same percentage as the percentage increase in the index and, if the result is not a multiple of £1,000, rounded up to the nearest amount which is such a multiple.

(8)The Treasury must before 6 April 2021 and each subsequent 6 April make an order specifying the amounts that in accordance with subsections (6) and (7) are the residential enhancement and taper threshold for the tax year beginning on that date; and any such order is to be made by statutory instrument.

(9)In this section—

• “tax year” means a year beginning on 6 April and ending on the following 5 April, and

• “the tax year 2017-18” means the tax year beginning on 6 April 2017 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).

8EResidence nil-rate amount: interest in home goes to descendants etcU.K.

(1)Subsections (2) to (7) apply if—

(a)the person's estate immediately before the person's death includes a qualifying residential interest, and

(b)N% of the interest is closely inherited, where N is a number—

(i)greater than 0, and

(ii)less than or equal to 100,

and in those subsections “NV/100” means N% of so much (if any) of the value transferred by the transfer of value under section 4 as is attributable to the interest.

(2)Where—

(a)E is less than or equal to TT, and

(b)NV/100 is less than the person's default allowance,

the person's residence nil-rate amount is equal to NV/100 and an amount, equal to the difference between NV/100 and the person's default allowance, is available for carry-forward.

(3)Where—

(a)E is less than or equal to TT, and

(b)NV/100 is greater than or equal to the person's default allowance,

the person's residence nil-rate amount is equal to the person's default allowance (and no amount is available for carry-forward).

(4)Where—

(a)E is greater than TT, and

(b)NV/100 is less than the person's adjusted allowance,

the person's residence nil-rate amount is equal to NV/100 and an amount, equal to the difference between NV/100 and the person's adjusted allowance, is available for carry-forward.

(5)Where—

(a)E is greater than TT, and

(b)NV/100 is greater than or equal to the person's adjusted allowance,

the person's residence nil-rate amount is equal to the person's adjusted allowance (and no amount is available for carry-forward).

(6)Subsections (2) to (5) have effect subject to subsection (7).

(7)Where the person's residence nil-rate amount as calculated under subsections (2) to (5) without applying this subsection is greater than VT—

(a)subsections (2) to (5) have effect as if each reference in them to NV/100 were a reference to VT,

(b)each of subsections (3) and (5) has effect as if it provided that the person's residence nil-rate amount were equal to VT (rather than the person's default allowance or, as the case may be, the person's adjusted allowance).

(8)See also—

• section 8H (meaning of “qualifying residential interest”),

• section 8J (meaning of “inherit”),

• section 8K (meaning of “closely inherited”), and

• section 8M (cases involving conditional exemption).

8FResidence nil-rate amount: no interest in home goes to descendants etcU.K.

(1)Subsections (2) and (3) apply if the person's estate immediately before the person's death—

(a)does not include a qualifying residential interest, or

(b)includes a qualifying residential interest but none of the interest is closely inherited.

(2)The person's residence nil-rate amount is nil.

(3)An amount—

(a)equal to the person's default allowance, or

(b)if E is greater than TT, equal to the person's adjusted allowance,

is available for carry-forward.

(4)See also—

• section 8H (meaning of “qualifying residential interest”),

• section 8J (meaning of “inherit”),

• section 8K (meaning of “closely inherited”), and

• section 8M (cases involving conditional exemption).

8GMeaning of “brought-forward allowance”U.K.

(1)This section is about the amount of the brought-forward allowance (see section 8D(5)(f)) for a person (“P”) who dies on or after 6 April 2017.

(2)In this section “related person” means a person other than P where—

(a)the other person dies before P, and

(b)immediately before the other person dies, P is the other person's spouse or civil partner.

(3)P's brought-forward allowance is calculated as follows—

(a)identify each amount available for carry-forward from the death of a related person (see sections 8E and 8F, and subsections (4) and (5)),

(b)express each such amount as a percentage of the residential enhancement at the death of the related person concerned,

(c)calculate the percentage that is the total of those percentages, and

(d)the amount that is that total percentage of the residential enhancement at P's death is P's brought-forward allowance or, if that total percentage is greater than 100%, P's brought-forward allowance is the amount of the residential enhancement at P's death,

but P's brought-forward allowance is nil if no claim for it is made under section 8L.

(4)Where the death of a related person occurs before 6 April 2017—

(a)an amount equal to £100,000 is treated for the purposes of subsection (3) as being the amount available for carry-forward from the related person's death, but this is subject to subsection (5), and

(b)the residential enhancement at the related person's death is treated for those purposes as being £100,000.

(5)If the value (“RPE”) of the related person's estate immediately before the related person's death is greater than £2,000,000, the amount treated under subsection (4)(a) as available for carry-forward is reduced (but not below nil) by—

8HMeaning of “qualifying residential interest”U.K.

(1)This section applies for the purposes of sections 8E and 8F.

(2)In this section “residential property interest”, in relation to a person, means an interest in a dwelling-house which has been the person's residence at a time when the person's estate included that, or any other, interest in the dwelling-house.

(3)Where a person's estate immediately before the person's death includes residential property interests in just one dwelling-house, the person's interests in that dwelling-house are a qualifying residential interest in relation to the person.

(4)Where—

(a)a person's estate immediately before the person's death includes residential property interests in each of two or more dwelling-houses, and

(b)the person's personal representatives nominate one (and only one) of those dwelling-houses,

the person's interests in the nominated dwelling-house are a qualifying residential interest in relation to the person.

(5)A reference in this section to a dwelling-house—

(a)includes any land occupied and enjoyed with it as its garden or grounds, but

(b)does not include, in the case of any particular person, any trees or underwood in relation to which an election is made under section 125 as it applies in relation to that person's death.

(6)If at any time when a person's estate includes an interest in a dwelling-house, the person—

(a)resides in living accommodation which for the person is job-related, and

(b)intends in due course to occupy the dwelling-house as the person's residence,

this section applies as if the dwelling-house were at that time occupied by the person as a residence.

(7)Section 222(8A) to (8D) of the 1992 Act (meaning of “job-related”), but not section 222(9) of that Act, apply for the purposes of subsection (6).

8JMeaning of “inherited”U.K.

(1)This section explains for the purposes of sections 8E and 8F whether a person (“B”) inherits, from a person who has died (“D”), property which forms part of D's estate immediately before D's death.

(2)B inherits the property if there is a disposition of it (whether effected by will, under the law relating to intestacy or otherwise) to B.

(3)Subsection (2) does not apply if—

(a)the property becomes comprised in a settlement on D's death, or

(b)immediately before D's death, the property was settled property in which D was beneficially entitled to an interest in possession.

(4)Where the property becomes comprised in a settlement on D's death, B inherits the property if—

(a)B becomes beneficially entitled on D's death to an interest in possession in the property, and that interest in possession is an immediate post-death interest or a disabled person's interest, or

(b)the property becomes, on D's death, settled property—

(i)to which section 71A or 71D applies, and

(ii)held on trusts for the benefit of B.

(5)Where, immediately before D's death, the property was settled property in which D was beneficially entitled to an interest in possession, B inherits the property if B becomes beneficially entitled to it on D's death.

(6)Where the property forms part of D's estate immediately before D's death as a result of the operation of section 102(3) of the Finance Act 1986 (gifts with reservation) in relation to a disposal of the property made by D by way of gift, B inherits the property if B is the person to whom the disposal was made.

8KMeaning of “closely inherited”U.K.

(1)In relation to the death of a person (“D”), something is “closely inherited” for the purposes of sections 8E and 8F if it is inherited for those purposes (see section 8J) by—

(a)a lineal descendant of D,

(b)a person who, at the time of D's death, is the spouse or civil partner of a lineal descendant of D, or

(c)a person who—

(i)at the time of the death of a lineal descendant of D who died no later than D, was the spouse or civil partner of the lineal descendant, and

(ii)has not, in the period beginning with the lineal descendant's death and ending with D's death, become anyone's spouse or civil partner.

(2)The rules in subsections (3) to (8) apply for the interpretation of subsection (1).

(3)A person who is at any time a step-child of another person is to be treated, at that and all subsequent times, as if the person was that other person's child.

(4)Any rule of law, so far as it requires an adopted person to be treated as not being the child of a natural parent of the person, is to be disregarded (but this is without prejudice to any rule of law requiring an adopted person to be treated as the child of an adopter of the person).

(5)A person who is at any time fostered by a foster parent is to be treated, at that and all subsequent times, as if the person was the foster parent's child.

(6)Where—

(a)an individual (“G”) is appointed (or is treated by law as having been appointed) under section 5 of the Children Act 1989, or under corresponding law having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, as guardian (however styled) of another person, and

(b)the appointment takes effect at a time when the other person (“C”) is under the age of 18 years,

C is to be treated, at all times after the appointment takes effect, as if C was G's child.

(7)Where—

(a)an individual (“SG”) is appointed as a special guardian (however styled) of another person (“C”) by an order of a court—

(i)that is a special guardianship order as defined by section 14A of the Children Act 1989, or

(ii)that is a corresponding order under legislation having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, and

(b)the appointment takes effect at a time when C is under the age of 18 years,

C is to be treated, at all times after the appointment takes effect, as if C was SG's child.

(8)In particular, where under any of subsections (3) to (7) one person is to be treated at any time as the child of another person, that first person's lineal descendants (even if born before that time) are accordingly to be treated at that time (and all subsequent times) as lineal descendants of that other person.

(9)In subsection (4) “adopted person” means—

(a)an adopted person within the meaning of Chapter 4 of Part 1 of the Adoption and Children Act 2002, or

(b)a person who would be an adopted person within the meaning of that Chapter if, in section 66(1)(e) of that Act and section 38(1)(e) of the Adoption Act 1976, the reference to the law of England and Wales were a reference to the law of any part of the United Kingdom.

(10)In subsection (5) “foster parent” means—

(a)someone who is approved as a local authority foster parent in accordance with regulations made by virtue of paragraph 12F of Schedule 2 to the Children Act 1989,

(b)a foster parent with whom the person is placed by a voluntary organisation under section 59(1)(a) that Act,

(c)someone who looks after the person in circumstances in which the person is a privately fostered child as defined by section 66 of that Act, or

(d)someone who, under legislation having effect in Scotland or Northern Ireland or any country or territory outside the United Kingdom, is a foster parent (however styled) corresponding to a foster parent within paragraph (a) or (b).

8LClaims for brought-forward allowanceU.K.

(1)A claim for brought-forward allowance for a person (see section 8G) may be made—

(a)by the person's personal representatives within the permitted period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on the person's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(2)In subsection (1)(a) “the permitted period” means—

(a)the period of 2 years from the end of the month in which the person dies or (if it ends later) the period of 3 months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(3)A claim under subsection (1) made within either of the periods mentioned in subsection (2)(a) may be withdrawn no later than one month after the end of the period concerned.

(4)Subsection (5) applies if—

(a)no claim under this section has been made for brought-forward allowance for a person (“P”),

(b)the amount of the charge to tax under section 4 on the death of another person (“A”) would be different if a claim under subsection (1) had been made for brought-forward allowance for P, and

(c)the amount of the charge to tax under section 4 on the death of P, and the amount of the charge to tax under section 4 on the death of any person who is neither P nor A, would not have been different if a claim under subsection (1) had been made for brought-forward allowance for P.

(5)A claim for brought-forward allowance for P may be made—

(a)by A's personal representatives within the allowed period, or

(b)(if no claim is so made) by any other person liable to the tax chargeable on A's death within such later period as an officer of Revenue and Customs may in the particular case allow.

(6)In subsection (5)(a) “the allowed period” means—

(a)the period of 2 years from the end of the month in which A dies or (if it ends later) the period of 3 months beginning with the date on which the personal representatives first act as such, or

(b)such longer period as an officer of Revenue and Customs may in the particular case allow.

(7)A claim under subsection (5) made within either of the periods mentioned in subsection (6)(a) may be withdrawn no later than one month after the end of the period concerned.

8MResidence nil-rate amount: cases involving conditional exemptionU.K.

(1)This section applies where—

(a)the estate of a person (“D”) immediately before D's death includes a qualifying residential interest,

(b)D dies on or after 6 April 2017, and

(c)some or all of the transfer of value under section 4 on D's death is a conditionally exempt transfer of property consisting of, or including, some or all of the qualifying residential interest.

(2)For the purposes of sections 8E and 8F, but subject to subsection (3), the exempt percentage of the qualifying residential interest is treated as being not closely inherited; and for this purpose “the exempt percentage” is given by—

(3)For the purposes of calculating tax chargeable under section 32 or 32A by reference to a chargeable event related to the qualifying residential interest where D is the relevant person for the purposes of section 33—

(a)in subsection (2), X is calculated as if the property forming the subject-matter of the conditionally exempt transfer had not included the property on which the tax is chargeable,

(b)section 33 has effect as if for subsection (1)(b)(ii) there were substituted—

“(ii)if the relevant person is dead, the rate or rates that would have applied to that amount in accordance with section 8D(2) and (3) above and the appropriate provision of section 7 above if—

(a)that amount had been added to the value transferred on the relevant person's death, and

(b)the unrelieved portion of that amount had formed the highest part of that value.”, and

(c)for the purposes of that substituted section 33(1)(b)(ii) “ the unrelieved portion ” of the amount on which tax is chargeable is that amount itself less the amount (if any) by which—

(i)D's residence nil-rate amount for the purposes of the particular calculation under section 33, exceeds

(ii)D's residence nil-rate amount for the purposes of the charge to tax under section 4 on D's death.

(4)The following provisions of this section apply if immediately before D's death there is a person (“P”) who is D's spouse or civil partner.

(5)For the purposes of calculating tax chargeable under section 32 or 32A by reference to a chargeable event related to the qualifying residential interest which occurs after P's death, the amount that would otherwise be D's residence nil-rate amount for those purposes is reduced by the amount (if any) by which P's residence nil-rate amount, or the residence nil-rate amount of any person who dies after P but before the chargeable event occurs, was increased by reason of an amount being available for carry-forward from D's death.

(6)Where tax is chargeable under section 32 or 32A by reference to a chargeable event related to the qualifying residential interest which occurs before P's death, section 8G(3) has effect for the purpose of calculating P's brought-forward allowance as if—

(a)before the “and” at the end of paragraph (c) there were inserted—

“(ca)reduce that total (but not below nil) by deducting from it the recapture percentage,”,

(b)in paragraph (d), before “total”, in both places, there were inserted “reduced”, and

(c)the reference to the recapture percentage were to the percentage given by—

(7)If subsection (6) has applied by reason of a previous event or events related to the qualifying residential interest, the reference in subsection (6)(c) to the fraction—]

9 Transitional provisions on reduction of tax.U.K.

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 [F20a new Table] in Schedule 1.