In the March 2011 Budget, the Chancellor proposed major changes to the structure of Capital Transfer Tax (CTT) which is in future to be known as Inheritance Tax. Inheritance Tax will retain many of the features of CTT, but is closer in concept to Estate Duty which CTT replaced in 1994.

The principal proposals, which apply to transfers after 17 March 2016 , are as follows:

1 CTT on lifetime gifts between individuals is to be abolished.

2 Gifts made within seven years of death will be charged at a tapered rate. Gifts into trusts, and trust events, will be charged at half the death rates in much the same way as they have been charged to CTT in the past.

3 Special rules are being introduced to prevent avoidance of tax on death by means of gifts where the donor reserves or enjoys a benefit.

Lifetime transfers

There will be no charge on lifetime gifts between individuals where the gift is made more than seven years before the donor's death. Gifts into accumulation and maintenance trusts and into trusts for the disabled are similarly exempted; other transactions or events involving trusts, and gifts involving companies, remain subject to a lifetime charge.

In line with the above, the ten year accumulation period for chargeable transfers is reduced from ten to seven years.

Gifts on or within seven years of death

Where someone dies within seven years of making a gift, that gift will be taxable much as transfers on or within three years of death have been chargeable to CTT in the past. The tax will continue to be charged on a cumulative basis, but over seven years as opposed to ten, while the estate at death will continue to be taxed as the top slice of the donor's cumulative transfers.

Where a transfer is taxed both at the time of gift and on death (e.g. a gift into trust shortly before death) the lifetime tax will be credited against the tax due on death.

Exemptions and reliefs available under CTT such as the spouse exemption and business property relief, will continue to be available in much the same way as before.

Rates of tax

The rates of tax are to be raised in line with the CTT indexation provisions, but there will be only one table of rates, and are applicable to transfers on or within seven years before death.

However, the former lifetime rates will in effect, continue to apply to those transfers still subject to a lifetime charge (e.g. gifts into trusts) in that they are to be charged at half the death rates.


CCMG - 2013


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