Section 1: general introduction
The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.
Inheritance Tax (IHT) has evolved from earlier methods of taxation on the transfer of property, primarily on death but see para 1.3 below regarding settled property.
In chronological order IHT follows Capital Transfer Tax (CTT) which was preceded by Estate Duty (ED).
Whilst this Manual relates principally to IHT situations, some cases may still be referred to the VOA under the CTT provisions and very rarely under ED rules.
1.2 Effective dates
By s.49(1) FA 1975, ED was abolished as from 13 March 1975.
Part III FA 1975 introduced Capital Transfer Tax which applied to chargeable transfers arising from lifetime gifts made on or after 27 March 1974 and to chargeable transfers on deaths occurring on or after 13 March 1975. Amendments were made in subsequent Finance Acts and the statutory provisions were consolidated in the Capital Transfer Tax Act 1984 (CTTA 1984) effective from 1 January 1985.
Fundamental changes to the tax, effective on and after 18 March 1986, were made by the Finance Act 1986 (FA 1986).
From 25 July 1986 the tax was renamed as Inheritance Tax and CTTA 1984 was to be cited as Inheritance Tax Act 1984 (s.100 FA 1986).
1.3 Settled property
By the provisions of Part III Inheritance Tax Act 1984 (IHTA 1984) the tax is applied to settled property. Subject to certain exceptions, the main occasions when such property may be chargeable to tax are:-
- by the creation of a settlement during life or on death;
- on the termination of a person’s interest in possession during lifetime or on death;
- on the making of a capital distribution by the trustees of a discretionary trust.
For discretionary and certain accumulation trusts there is also a periodic charge to tax at ten-year intervals.
Availability of VOA services to HMRC
The services of the VOA are available to HMRC, to provide valuations of land, buildings, lordships of the manor, growing crops, live and dead farming stock, plant, machinery and fixtures which are required for assessment of IHT. Requests for advice, which will normally be received direct from HMRC should be complied with provided the request falls within the scope of the instructions contained in this Manual. Any request outside the ambit of these instructions or any reference from HMRC on which advice is needed should be referred to CEO. Unless otherwise indicated, all references in this Manual to CEO refer to the CEO Professional and Policy Support (HMRC Team).
Because of the complexity of the law relating to IHT the instructions contained in this Manual do not always cover all the legal niceties involved. When necessary reference should always be made to the precise wording of the various statutes. Where amending legislation is passed (i.e.. Finance Acts ) care must be taken to observe the date(s) from which any changes apply especially in view of the fact that the parties are allowed 12 months, or longer in some instances (s.216(6) IHTA 1984) in which to deliver their IHT account to HMRC.
1.6 Consultation with CEO
In any case of difficulty in the interpretation of the law or in the application of any principle CEO should be consulted.
Payment of Tax
Usually the due date for the payment of IHT is 6 months after the end of the month in which the chargeable transfer is made but in the case of a lifetime transfer made after 5 April and before 1 October in any year IHT is due on 30 April in the following year. (S.226 IHTA 1984).
1.8 Interest on unpaid Tax
Interest is charged on any IHT unpaid after the date due and is not allowable as a deduction when computing any income, profits or losses for any tax purposes.
1.9 Expeditious handling of cases by the VOA
In view of the liability of the accountable parties to pay interest on overdue IHT it is essential that time limits are complied with and no avoidable delay occurs in the handling of cases by the VOA.