EXPLANATORY NOTE

1. This clause introduces changes which, together with the measures in clauses 94 to 96, are intended to encourage voluntary compliance with statutory obligations and therefore improve the administration of inheritance tax. The clause extends the information to be provided in the inheritance tax account that the personal representatives of a deceased person have to deliver.

2. For deaths on or after 9 March 1999, the information must include details of any chargeable transfers made by the deceased within seven years of his/her death.

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3. Subsection (1) substitutes new subsections (3), (3A) and (3B) for existing subsection (3) of section 216 of the Inheritance Tax Act 1984.

New subsection (3) provides that an account delivered by the personal representatives of a deceased person (except where it is limited to settled land in England and Wales) must include "the appropriate property". The term covers:

(a) as now, all the assets in the deceased’s estate at his/her death other than any asset which may be treated as being part of the estate under the inheritance tax rules on gifts involving reservation of benefit to the donor; and

(b) in addition, all assets to which any chargeable transfers made by the deceased within seven years of his/her death relate.

New subsection (3A) reproduces, in a clearer format, the existing subsection (3)(a). The effect of the provision is broadly to allow

personal representatives to provide a provisional estimate of the value of an asset included in their account where, despite making all reasonable enquiries, they cannot establish the exact value.

New subsection (3B) reproduces the existing subsection (3)(b). It enables the Board of Inland Revenue to give directions restricting the assets to be included in accounts to be delivered by personal representatives.

6. Subsection (2) applies the provisions in new subsection (3) in relation to deaths occurring on or after 9 March 1999.

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7. In general, inheritance tax (IHT) is charged on the value of assets comprised in a person’s estate at the time of his/her death and of any chargeable gifts or transfers made by the deceased within seven years of death. The total value of these chargeable transfers is also taken into account in determining the amount of IHT payable on the death estate. Where the aggregate value of the chargeable transfers and the estate exceeds the IHT nil rate band or threshold, the excess is charged to tax at 40 per cent. For IHT charges arising on or after 6 April 1999, the threshold is proposed to rise from the current £223,000 to £231,000.

8. Most lifetime gifts count as potentially exempt transfers (PETs) when they are made. A PET does not attract any immediate IHT charge, and it becomes exempt from IHT once the person who made the gift (‘the donor’) has survived for seven years. A PET has to be reported for IHT only if the donor dies within seven years of making the gift.

9. For IHT purposes, a person’s estate at any particular time includes the assets which he/she then owns. It can also include other assets that he/she is deemed to own at that time. For example, a person entitled to the income from assets held in trust is treated as owning those assets. Also, an asset given away in a donor’s lifetime but which the donor continues to use until death is treated as being part of his/her IHT estate at death. This is often referred to as a ‘gift with reservation’.

10. The current provisions on the administration and collection of IHT are contained in Part VIII (sections 215-261) of the IHT Act 1984 ("IHTA"). These essentially date from the 1975 legislation on capital transfer tax, which IHT replaced in 1986.

11. Under existing provisions (section 216 IHTA), any person who is liable for IHT on a transfer is required to deliver an account giving details of the ‘appropriate property’, broadly, the asset to which the transfer relates, and its exact value.

12. For an account to be delivered by the personal representatives of a deceased person, the term ‘appropriate property’ usually means the assets comprised in the deceased’s estate at death. It does not cover any asset which may be treated as forming part of the death estate by reason of the IHT rules (section 102 Finance Act 1986) on gifts with reservation. If, despite all reasonable enquiries, the personal representatives cannot establish the exact value of an asset, they may provide an estimated value in the first instance. The Board of Inland Revenue can restrict the assets to be shown in a personal representatives’ account.

13. The clause reproduces these provisions in a clearer format. It also extends the information to be provided by personal representatives. For deaths on or after 9 March 1999, this must include details of any chargeable transfers made by the deceased concerned within seven years of his/her death.