§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)My right honourable friend the Paymaster General (Dawn Primarolo) has made the following Written Ministerial Statement.
This Statement announces regulations under Section 104 of the Finance Act 1986 to provide relief from double inheritance tax (IHT) charges in situations caught by the pre-owned assets provisions at Schedule 15 to the Finance Act 2004, and is in addition to extended relief from income tax under Schedule 15 which I announced in a Written Statement on 7 March (Official Report, col. WS 23).
The pre-owned assets legislation in Schedule 15 provides for taxpayers to make an election so that they do not have to pay income tax in respect of a pre-owned asset but instead have the asset treated as part of their estate for IHT purposes. If the taxpayer dies within the next few years after making the election there is a possibility of two IHT charges on the same underlying asset value.
In particular, many taxpayers have used a "double trust" structure; one trust is created to buy the settlor's asset in exchange for an IOU, and this IOU is gifted into a second trust to take it out of the settlor's taxable estate. If the settlor dies within seven years, the estate will be liable to IHT on the IOU; and if they have made an election under Schedule 15 to the Finance Act 2004, their estate will be also liable on the underlying asset. It is clear from responses in consultation that this prospect is preventing some people making an election which they would otherwise find attractive.
The regulations will eliminate this double IHT charge so that people who wish to make an election under Schedule 15 can be assured that only one IHT charge will be due whatever the timing of their death.
The regulations will be announced and made available on the Inland Revenue's website at www.inlandrevenue.gov.uk.