Taxation in the United Kingdom
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Central government taxation
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Local government taxation
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In the United Kingdom, Inheritance Tax was first introduced as a tax on estates in England and Wales over a certain value from 1796, then called legacy, succession and estate duties. The value changed over time and the scope of estate duty was extended. By 1857 estates worth over £20 were taxable but duty was rarely collected on estates valued under £1500. Death duties were introduced in 1894, and for the next century were effective in breaking up large estates. Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_the_British_Virgin_Islands. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_the_Netherlands. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Peru. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_Tanzania. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... Succession duty, in the English fiscal system, a tax placed on the gratuitous acquisition of property which passes on the death of any person, by means of a transfer from one person (called the predecessor) to another person (called the successor). ...

Inheritance Tax is currently not payable on 94% of estates^[1]

Inheritance Tax

Estate duty was replaced in 1975 by Capital Transfer Tax, which was rebranded Inheritance Tax (IHT) in 1986. Partly due to the simple and widely-used methods which are available to avoid it, Inheritance Tax accounts for about 0.8% of government income, raising around £2,000,000,000 in 2001^[2] and £3,600,000,000 in 2006. ^{[citation needed]} This article contrasts tax avoidance, tax evasion, tax mitigation, tax fraud, tax resistance and tax protesters. ...

For the 6 April 2007 to 5 April 2008 tax year, the IHT rate is 40% on the value, at death, of an individual's tax estate over £300, 000. This figure is known as the nil rate band, and rises annually; tax is only payable on the value of an estate above the nil rate band. As an example, ceteres paribus, an individual whose estate matches the average house price in London for 2007 (£354, 000)^[3] will pay IHT to the amount of £21, 600, corresponding to about 6.1% of their estate. Those whose estates match the average nation-wide house price of £210,000^[4] will pay zero IHT. is the 96th day of the year (97th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st Century. ... is the 95th day of the year (96th in leap years) in the Gregorian calendar. ... 2008 (MMVIII) will be a leap year starting on Tuesday of the Gregorian calendar. ... A fiscal year or financial year is a 12-month period used for calculating annual (yearly) financial reports in businesses and other organizations. ...

In the 2007 budget report the Chancellor announced that the nil rate band is to rise to £350,000 by 2010. This is to take into account the sharp rise in house prices in the united Kingdom over the past few years.^[5]

Tax estate

The tax estate includes:

1. all of the deceased's assets, whether real estate or personal estate, and includes even small-value items such as the contents of his or her home;
2. any gifts made by the deceased in the seven years before death;
3. some assets which were not owned by the deceased but which are affected by the death (the most common example is a life interest in a trust, technically known as an interest-in-possession);
4. gifts with reservation of benefit. These are gifts where the legal ownership passes to the recipient. However, the donor continues to enjoy the benefit of the asset either rent free or at reduced cost. The seven year period outlined above does not begin counting down whilst a gift is considered to be under a reservation of benefit.

There is also a charge on "lifetime chargeable transfers" into certain trusts (and a recalculation of those charges if the giver dies within seven years), and trusts themselves have an inheritance tax regime. See Taxation of trusts (United Kingdom). This page deals with the cessation of life. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... Personal property is a type of property. ... This page deals with the cessation of life. ... A life interest (or life rent in Scotland) is some form of right under a trust which lasts only for the lifetime of the person benefitting from that right. ... For trusts in senses other than the legal sense, see trust; for the law of trusts in the USA see Trust (Law) USA. A trust is the legal term for a situation where one person, known as a trustee, holds assets for the benefit of another person, known as a... The taxation of trusts in the United Kingdom is governed by a different set of principles to those tax laws which apply to individuals or companies. ...

Deductions

There are deductions for:

1. all assets left to a charity registered in the UK.
2. some political donations;
3. gifts of up to £3000 in total in a given year[1]
4. "small gifts" of up to £250 made to separate people;
5. some business assets (under Business Property Relief or "BPR");
6. some farmland (under Agricultural Property Relief or "APR").
7. gifts made out of income that do not impact upon the standard of living of an individual.
8. gifts made in contemplation of a marriage or civil partnership. The level of this deduction varies according to the relationship of the donor to person marrying or entering into a civil partnership.

Minimising IHT

In order to avoid IHT, many people in the IHT bracket practise some or all of the following avoidance measures: This article contrasts tax avoidance, tax evasion, tax mitigation, tax fraud, tax resistance and tax protesters. ... This article contrasts tax avoidance, tax evasion, tax mitigation, tax fraud, tax resistance and tax protesters. ...

• Outright gifts to another individual made during a person's lifetime are known as "potentially exempt transfers" or PETs. They are taxable if the person dies within seven years, but have the potential to become exempt from tax once seven years have gone by with the giver still alive. If the giver survives three years, the rate of tax on the PET reduces by one fifth (to 32%) and then by a further fifth on each of the subsequent anniversaries (to 24%, 16% then 8%) reaching 0% after seven years. This is known as inheritance tax taper relief (not to be confused with the better-known capital gains tax taper relief).

• Gifting assets to a trust fund before death. (Some gifts of this kind, however, are disadvantageous as they amount to lifetime chargeable transfers on which IHT is paid straight away if more than £300,000 is gifted. This applies to many more trusts than previously under legislation announced in the 2006 budget. See Taxation of trusts (United Kingdom).)

• Certain special types of trust, such as Discounted Gift Trusts and Gift & Loan Trusts, which allow for some planning whilst retaining some access to capital/income.

• Charitable giving, which is IHT exempt.

• Lifetime gifts within certain limits are completely exempt. These include any number of "small gifts" (up to £250), an annual amount of £3,000, all regular gifts from surplus income, and some wedding gifts.

• Upon death, passing non-taxable assets to the next generation (or to a discretionary trust for the benefit of the whole family) and therefore NOT to the spouse. To many people this seems counter-intuitive because they are aware that gifts to a spouse are IHT exempt and should therefore be maximised. However, if something is non-taxable on the first death it should not go to the spouse as it will merely increase his or her tax estate upon his or her later death. (The nil-band discretionary trust, discussed below, is an example of this principle in action.)

For trusts in senses other than the legal sense, see trust; for the law of trusts in the USA see Trust (Law) USA. A trust is the legal term for a situation where one person, known as a trustee, holds assets for the benefit of another person, known as a... The taxation of trusts in the United Kingdom is governed by a different set of principles to those tax laws which apply to individuals or companies. ... Something is counter-intuitive if it does not seem likely to be true using the tool of human intuition or gut-feeling to perceive reality. ...

Nil rate bands

A person who has a tax estate less than the nil rate band may consider himself or herself outside the IHT bracket. However a couple with estates of less than double the nil rate band cannot consider themselves outside the IHT bracket unless they have taken specific action to ensure they use both nil rate bands. If they do the natural thing - the first of them to die leaving everything to the survivor - then they have effectively wasted that first nil rate band. The survivor will die owning everything, with only his or her one nil rate band to set against it.

The most common means of ensuring that both nil rate bands are used is called a nil band discretionary trust (now more properly known as NRB Relevant Property Trust*). This is an arrangement in both wills which says that whoever is the first to die leaves their nil band to a discretionary trust for the family, and not to the survivor. The survivor can still benefit from those assets if needed, but they are not part of that survivor's tax estate. For trusts in senses other than the legal sense, see trust; for the law of trusts in the USA see Trust (Law) USA. A trust is the legal term for a situation where one person, known as a trustee, holds assets for the benefit of another person, known as a...

For the above to work it is important that each partner has sufficient assets in their own name to cover the nil-band. Many married couples do not have sufficient spare assets to fund the NRB relevant property trust without using the matrimonial home. The home will normally be in joint names so the will needs to make provision for using the deceased's interest in the home in relation to the relevant property trust. If assets are all in one name, or in joint names, the arrangement may not work. This is often described, slightly inaccurately, as "equalisation". A concurrent estate or co-tenancy is a concept in property law, particularly derived from the common law of real property, which describes the various ways in which property can be owned by more than one person at a given time. ...

A gift is not valid for IHT purposes if the giver retains any benefit from it. There are quite complex and rigid rules which establish whether the giver has retained a benefit, and where there is a retention of benefit all IHT advantages from the gift are effectively lost.

• Finance Act 2006

Pre-owned assets

The Finance Act 2004 introduced an income tax regime known as pre-owned asset tax which aims to reduce the use of common methods of IHT avoidance.^[6] The Finance Act 2004 is a piece of United Kingdom legislation. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income...

Criticism

Dr.Barry Bracewell-Milnes authored Euthanasia for Death Duties - Putting Inheritance Tax Out of Its Misery, which was published by The Institute of Economic Affairs, Westminster, 2002, ISBN 0-255-36513-6

In August 2006, former Cabinet minister Stephen Byers called for IHT to be abolished in an article in the Sunday Telegraph.[2]. This article does not cite any references or sources. ... The Right Honourable Stephen John Byers (born April 13, 1953) is a British Labour Party politician and former cabinet minister. ... This article deals with The Daily Telegraph in Britain, see The Daily Telegraph (Australia) for the Australian publication The Daily Telegraph is a British broadsheet newspaper founded in 1855. ...

On 16 October 2006, Philip Johnston, writing in The Daily Telegraph had a scathing leading article against Inheritance Taxes and called for David Cameron, new leader of the Conservative Party (UK), to announce the demise of a catch-all Inheritance Tax as a main plank in that party's next manifesto. is the 289th day of the year (290th in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... This article concerns the British newspaper. ... For the Canadian ice hockey player, see Dave Cameron. ... The Conservative Party (officially the Conservative and Unionist Party) is the second largest political party in the United Kingdom in terms of sitting Members of Parliament (MPs), the largest in terms of public membership, and the oldest political party in the United Kingdom. ...

References

1. ^ http://news.bbc.co.uk/1/hi/uk_politics/6949753.stm. accessed 01 October 2007
2. ^ http://www.unbiased.co.uk/media/media-resources/press-releases/7-11-2001%5B60%5D accessed 22 May 2007
3. ^ http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/regions/html/region10.stm
4. ^ http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm
5. ^ http://money.uk.msn.com/budget/article.aspx?cp-documentid=4345307 accessed 21 March 2007
6. ^ REV BN 40: Tax Treatment Of Pre-Owned Assets

October 1 is the 274th day of the year (275th in Leap years). ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st Century. ... is the 142nd day of the year (143rd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st Century. ... is the 80th day of the year (81st in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st Century. ...

See also

• History of the English fiscal system
• Disclaimer of interest (including Deed of Variation)

The history of the English fiscal system affords the best example known of continuous financial development, in respect both of institutions and methods. ... Disclaimer of interest (also called a renunciation), in the law of inheritance, wills and trusts, is a term that describes an attempt by a person to renounce their legal right to benefit from an inheritance (either under a will or through intestacy) or through a trust. ...

External links

• Revenue and Customs Inheritance Tax