Finance Act 1966

41 Restriction of exemption from estate duty for certain government securities.

(1) This section has effect as respects securities which the Treasury issue or have issued before or after the passing of this Act subject to any condition authorised by section 47 of the [1915 c. 89.] Finance (No. 2) Act 1915 or section 22 of the [1931 c. 49.] Finance (No. 2) Act 1931 for an exemption from taxation so long as the securities are in the beneficial ownership of persons neither domiciled nor ordinarily resident in the United Kingdom, and this section is enacted for the purpose of preventing that exemption from enuring for the benefit of, or of the estate of, a person domiciled or ordinarily resident in the United Kingdom.

(2) Where in respect of any government securities any such exemption applies apart from this section to estate duty leviable on the death after 3rd May 1966 of a person who immediately before the death was domiciled or ordinarily resident in the United Kingdom, then, subject to the exceptions provided by the following provisions of this section.—

(a) if the exemption is subject to a condition relating to any law directed to preventing avoidance of taxation by persons domiciled, resident or ordinarily resident in the United Kingdom, the said exemption shall not apply to that estate duty, and

(b) if the exemption is not subject to any such condition, there shall be deemed for purposes of estate duty on the death to be included in the property passing at the death a sum equal to the value upon which, but for the exemption, estate duty would have been payable, and any sum so deemed to pass shall for the purposes of aggregation and of determining the persons accountable for duty be treated as having been property to which the deceased was absolutely entitled at his death,

but so far as the duty imposed by paragraph (b) above has not been paid by the deceased's personal representatives accountability for the duty shall be imposed on any person who, if the exemption had not applied to the duty, would have been accountable for it under the enactments relating to estate duty; and any payment made by the personal representatives shall for the purposes of this subsection be regarded as a payment of the duty imposed by paragraph (b) above only so far as there is no other estate duty leviable on the death for which they are accountable and which has not been paid.

(3) Subsection (2) above shall not apply where it is shown to the satisfaction of the Commissioners of Inland Revenue, or on an appeal under section 10 of the [1894 c. 30.] Finance Act 1894 of the court entertaining the appeal, that the circumstances in which, apart from this section, the exemption applies in respect of any government securities were not brought about for the purpose, or for purposes which include the purpose, of obtaining the benefit of the exemption directly or indirectly for, or for the estate of, a person domiciled or ordinarily resident in the United Kingdom, or for a company to which section 56 of the [1940 c. 29.] Finance Act 1940 (closely controlled companies) applies and in which a person domiciled or ordinarily resident in the United Kingdom has an interest; and where the circumstances in which the exemption so applies in respect of any government securities were not brought about by the deceased subsection (2) above shall not apply so as by virtue of paragraph (b) of that subsection to make the personal representatives accountable for duty or to increase the amount of duty beyond what would have been due had there been no exemption.

(4) Subsection (2) above shall not apply in respect of any government securities if no person who would be accountable for estate duty leviable on the death on the government securities on the assumption that the exemption did not apply in respect of those government securities is a person domiciled or ordinarily resident in the United Kingdom or a company to which the said section 56 of the Finance Act 1940 applies.

(5) If a donee or other person being, on the assumption in subsection (4) above, contingently accountable for estate duty pre-deceases the deceased, that subsection shall apply, so far as it relates to that donee or other person, by reference to him and not by reference to his personal representatives or successors in title, and according to where he was domiciled or ordinarily resident at his death.

(6) If the persons who would, on the assumption in subsection (4) above, be so accountable consist of or include trustees under a settlement created before the death, whether or not subsisting at the death, subsection (4) above shall not have effect but subsection (2) above shall not apply in respect of the government securities if and to the extent that it is shown to the satisfaction of the Commissioners of Inland Revenue, or on an appeal under section 10 of the [1894 c. 30.] Finance Act 1894 of the court entertaining the appeal, that the burden of the duty, having regard to interests subsisting immediately after the death, would be borne by any person who is neither domiciled nor ordinarily resident in the United Kingdom, and for the purposes of this subsection interests in income, interests in capital, interests in possession and interests in reversion shall all be taken into account.

(7) If interests under a trust subsisting at the death fall to be taken into account under subsection (6) above, and all interests in the trust other than reversionary interests are interests contingent on the exercise of the discretion of any of the trustees or of any other person, subsection (2) above shall not be displaced by subsection (6) if any of the persons interested in the trust is domiciled or ordinarily resident in the United Kingdom.

(8) Subsection (6), and not subsection (4), above shall apply if the persons who would, on the assumption in subsection (4) above be so accountable consist of or include a company to which the said section 56 of the [1940 c. 29.] Finance Act 1940 applies, and the assumptions made in the said section 56(1) as to the company holding its assets in trust shall be made for the purposes of subsection (6) above, taking the interests in the company as they subsisted immediately before the death ; and similarly where under subsection (6), with or without this subsection, the burden falling on any person who is a company to which the said section 56 applies is in question, the same assumptions shall be made as respects the company.

(9) Nothing in subsections (4) to (8) above shall prevent subsection (2) above from applying in respect of any government securities settled under a settlement revocable in whole or in part at any time after the death of the deceased person at the instance of any person.

(10) Section 8(4) of the [1894 c. 30.] Finance Act 1894 (which, where an executor is not accountable for estate duty, renders the beneficiaries and others accountable therefor) shall apply as if the words referring to the executor not being accountable were omitted both for the purposes of accountability for estate duty leviable by virtue of this section and also for the purposes of this section as it relates to the persons who would be accountable for estate duty on the assumptions in subsections (2), (4) and (6) of this section.

(11) For the purposes of this section—

(a) the reference in subsection (3) of this section to a company to which section 56 of the [1940 c. 29.] Finance Act 1940 applies, and in which a person domiciled or ordinarily resident in the United Kingdom has an interest, shall be determined on the assumptions made in the said section 56(1) as to the company holding its assets in trust,

(b) the reference in subsection (7) of this section to interests contingent on the exercise of a discretion include references to interests, whether in capital or income, which are affected by the exercise of a discretion in favour of some person other than the person entitled to the interest.