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HMRC internal manual

Inheritance Tax Manual

Estate Duty surviving spouse exemption: duty treated as paid in full on the first death

There is a basic requirement that duty should have been paid on the settled property on the first death. Where duty is not actually paid, it is nevertheless treated as having been paid where

  • the estate was below the minimum dutiable threshold,
  • between 22 March 1972 and 12 November 1974, the value of the property was subject to the Estate Duty spouse exemption (limited to £15,000),
  • Killed-in-War exemption under FA1952/S71 or Killed-in-War remission under FA1924/S38 or other enactments applied,
  • the property was an interest in expectancy, which was treated as of no value because it was subject to an overriding power of appointment.

There is no restriction on the exemption for part payment of duty where

  • payment was made, on the death of the first spouse to die, on the value of property reduced by an incumbrance or debts deductible in valuing it for Estate Duty. This applies even though since the death of the first spouse, the incumbrance or debts (or any part thereof) have been discharged either by the surviving spouse or by a third party, or out of property, for example, a gratuity, that did not bear duty on the first death. The payment of duty that was made should be treated as a payment in respect of the whole of the property. This practice is consistent with the interpretation given to the phrase ‘in respect of’, in FA1894/S5 (2) in IRC v Coutts and Co [1964] AC 1393, and
  • exemption is neither refused nor restricted if the duty payable on the property on the first death is not borne by the settled property itself. In Re Hall, Holland v Att Gen [1942] Ch 140, the surviving spouse paid the duty out of her own resources. Exemption still applies to the whole of the settled property on the second death and it should not be argued that the life tenant was competent to dispose (IHTM04457) of any part of the settled property because the duty was paid in that way.