Finance Act 1989

Gifts on which inheritance tax is chargeable etc. U.K.

4 The following sections shall be inserted after section 147 of the M1 Capital Gains Tax Act 1979—

“147A Gifts on which inheritance tax is chargeable etc.

“147A (1) If—

(a) an individual or the trustees of a settlement (in this section referredto as “the transferor”) make a disposal within subsection (2) below ofan asset,

(b) the asset is acquired by an individual or the trustees of a settlement (inthis section referred to as “the transferee”), and

(c) a claim for relief under this section is made by the transferor and thetransferee or, where the trustees of a settlement are the transferee, by thetransferor alone,

then, subject to subsection (6) and section 147B below, subsection (3)below shall apply in relation to the disposal.

(2) A disposal is within this subsection if it is made otherwise than undera bargain at arm’s length and—

(a) is a chargeable transfer within the meaning of the Inheritance Tax Act 1984 (or would be but for section 19 of that Act) and isnot a potentially exempt transfer (within the meaning of that Act),

(b) is an exempt transfer by virtue of—

(i) section 24 of that Act (transfers to political parties),

(ii) section 26 of that Act (transfers for public benefit),

(iii) section 27 of that Act (transfers to maintenance funds for historicbuildings etc.), or

(iv) section 30 of that Act (transfers of designated property),

(c) is a disposition to which section 57A of that Act applies and by which theproperty disposed of becomes held on trusts of the kind referred to insubsection (1)(b) of that section (maintenance funds for historic buildingsetc.),

(d) by virtue of subsection (4) of section 71 of that Act (accumulation andmaintenance trusts) does not constitute an occasion on which inheritance taxis chargeable under that section,

(e) by virtue of section 78(1) of that Act (transfers of works of art etc.)does not constitute an occasion on which tax is chargeable under Chapter IIIof Part III of that Act, or

(f) is a disposal of an asset comprised in a settlement where, as a result ofthe asset or part of it becoming comprised in another settlement, there is nocharge, or a reduced charge, to inheritance tax by virtue of paragraph 9, 16or 17 of Schedule 4 to that Act (transfers to maintenance funds for historicbuildings etc.).

(3) Where this subsection applies in relation to a disposal—

(a) the amount of any chargeable gain which, apart from this section, wouldaccrue to the transferor on the disposal, and

(b) the amount of the consideration for which, apart from this section, thetransferee would be regarded for the purposes of capital gains tax as havingacquired the asset in question,

shall each be reduced by an amount equal to the held-over gain on thedisposal.

(4) Subject to subsection (5) below, the reference in subsection (3) above tothe held-over gain on a disposal is a reference to the chargeable gain whichwould have accrued on that disposal apart from this section.

(5) In any case where—

(a) there is actual consideration (as opposed to the consideration equal tothe market value which is deemed to be given by virtue of any provision ofthis Act) for a disposal in respect of which a claim for relief is made underthis section, and

(b) that actual consideration exceeds the sums allowable as a deduction undersection 32 above,

the held-over gain on the disposal shall be reduced by the excessreferred to in paragraph (b) above or, if part of the gain on the disposal isrelieved under Schedule 20 to the Finance Act 1985(retirement relief), by so much, if any, of that excess as exceeds the partso relieved.

(6) Subsection (3) above does not apply in relation to a disposal of assetswithin section 67(1) above on which a gain is deemed to accrue by virtue ofparagraph 10(1)(b) of Schedule 13 to the Finance Act1984.

(7) In the case of a disposal within subsection (2)(a) above there shall beallowed as a deduction in computing the chargeable gain accruing to thetransferee on the disposal of the asset in question an amount equal towhichever is the lesser of—

(a) the inheritance tax attributable to the value of the asset, and

(b) the amount of the chargeable gain as computed apart from this subsection.

(8) Where an amount of inheritance tax is varied after it has been taken intoaccount under subsection (7) above, all necessary adjustments shall be made,whether by the making of an assessment to capital gains tax or by thedischarge or repayment of such tax.

(9) Where subsection (3) above applies in relation to a disposal which isdeemed to occur by virtue of section 54(1) or 55(1) above, subsection (5)above shall not apply.

(10) Where a disposal is partly within subsection (2) above, or is a disposalwithin paragraph (f) of that subsection on which there is a reduced chargesuch as is mentioned in that paragraph, the preceding provisions of thissection shall have effect in relation to an appropriate part of the disposal.

147B Section 147A relief: gifts to non-residents.

147B (1) Section 147A(3) above shall not apply where the transferee is neitherresident nor ordinarily resident in the United Kingdom.

(2) Section 147A(3) above shall not apply where the transferee is anindividual who—

(a) though resident or ordinarily resident in the United Kingdom, is regardedfor the purposes of any double taxation arrangements having effect by virtueof section 788 of the Taxes Act 1988 as resident in a territory outside theUnited Kingdom, and

(b) by virtue of the arrangements would not be liable in the United Kingdomto tax on a gain arising on a disposal of the asset occurring immediatelyafter its acquisition.”

Marginal Citations

M1 1979c.14.