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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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How Inheritance Tax is charged: history

Inheritance tax (IHT) is the successor to Capital Transfer Tax (CTT), which was an integrated lifetime transfer and estates tax. As a result, the IHT charge is based on taxing lifetime transfers. (IHTM04051) These provisions are then adapted to charge tax on other events such as

  • death (IHTM04041)
  • gift with reservation (IHTM04071) (GWRs), and
  • transactions involving settled property in which an interest in possession (IHTM04081) subsists. Under CTT, all lifetime transfers were charged to tax when they were made. Under IHT, certain types of lifetime transfer remain taxable when made. Most are only taxable if the transferor dies within seven years of making the transfer. These transfers are known as potentially exempt transfers, (

IHTM04057) (PETs) because they will become exempt transfers if the transferor survives for seven years.

There is separate legislation for charging inheritance tax on settled property that is held on non-interest in possession trusts, otherwise gathered together under the term discretionary trusts. (IHTM04095)