Regulation 5 Double charges—gifts with reservation and death

(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.