Inheritance Tax (United Kingdom)

In the United Kingdom, Inheritance Tax is a transfer tax. It was introduced with effect from 18 March 1986 replacing Capital Transfer Tax.

Prior to the introduction of Estate Duty by the Finance Act 1894, there was a complex system of different taxes relating to the inheritance of property, that applied to either (land) or (other personal property):

In 1894, estate duty replaced probate duty, account duty, certain additional succession duties, and temporary estate duty.

Legacy duty and succession duty were later abolished by the Finance Act 1949, followed by the abolition of corporation duty by the Finance Act 1959. The three-year period for gifts made prior to death was extended to five years by the Finance Act 1946, and then to seven years by the Finance Act 1969.

Estate duty became more progressive in scale, eventually peaking in 1969 with the highest marginal rate fixed at 85% of amounts in excess of £750,000, provided that total duty did not exceed 80% of the value of the total estate.

Estate duty was abolished with the passage of the Finance Act 1975, which created the Capital Transfer Tax, with the following characteristics:

CTT was reduced in scope during the Thatcher years, with most lifetime gifts removed by the Finance Act 1986. The tax was renamed as Inheritance Tax.

For IHT purposes, a person's estate includes:

Excluded property comprises:

Relief is also granted, where the value of the estate is reduced with respect to specified business property, agricultural property, woodlands, certain transfers made within three years of death made at a diminished value, and certain other cases.

Deductions will be made from an estate's nil rate band with respect to transfers of value made in excess of specified limits, other than "potentially exempt transfers" made more than seven years before the transferor's death. Transfers of value made within specified limits are known as "exempt transfers".

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