Inheritance tax (UK)
This was introduced to take effect from 18 March 1986. It replaces the levy on gratuitous transfers of property effective on the death of the donor previously governed by the rules of capital transfer tax. Capital transfer tax applied to all gratuitous transfers of property by one individual during his hfetime and, subject to the various exemptions available (e.g. transfers totalling less than a given amount in one year, transfers between spouses, etc.), became due once the gift had been made. It was levied on a sliding scale and the value of the gift made was measured by the diminution in the estate of the donor.
On 18 March 1986 the taxation of lifetime gifts was abolished. From that date genuine transfers of property by way of gift are only taxable when the donor dies within seven years of the transfer. When the donor dies I after three years but within the seven year period the rates of tax are reduced year by year.
Such chargeable gifts, together with all property passing on the death of the donor, are now subject to inheritance tax, which is similar in both structure and effect to the estate duty levy, which was discontinued on the introduction of C.T.T. in 1974. Inheritance tax will also apply to all gifts made during the deceased’s lifetime when he has retained some beneficial interest. In that case the value of the asset for tax purposes will be its value at the date on which the donor’s interest ceases, not the value at the time the gift was originally made.
Generally speaking, the tax will be borne by the estate of the deceased and will not be levied on the beneficiaries or recipients of those gifts made within the seven year period, or otherwise brought into charge. The tax will be charged on a sliding scale and is not payable on estates of a gross value less than a substantial minimum figure. This starting figure for the application of tax may be varied from year to year.
Reference: The Penguin Business Dictionary, 3rd edt.