Division I1.4 IHT: History
For updates affecting this Division please see Part I0 Updates
Introduction and development of IHT
I1.401 Relationship with CTT
From the passing of FA 1986, CTT was renamed inheritance tax (IHT)1, and substantial changes to the rules were made by FA 1986, Pt V (ss 100–107) by which the estate duty policy of only charging tax on lifetime gifts made within seven years of the donor's death was revived2. These changes took effect for transfers etc after 17 March 1986. Although the original CTT policy was completely reversed, the CTT legislation was largely retained and amended. The effect is not the same in every respect as under the estate duty rules (see I1.403). CTTA 1984 was renamed IHTA 19843.
The form of the amended rules was in part a reaction to tax avoidance schemes. Just as the CTT legislation when originally introduced contained an attack on discretionary trusts, FA 1986 contains an attack on inheritance trust schemes (see I1.303). The rationale for not allowing tax-free transfers to be made into discretionary settlements (where the transferor survives the transfer by seven years) was to discourage use of the discretionary trust. However, in practice discretionary trusts experienced a modest revival, for two main reasons. First, the increase since 1986 in the IHT nil rate band and the reduction in the tax rate4, and second the abolition by FA 1989 of general CGT holdover relief while preserving it for property going into discretionary trusts (see I3.611, I3.613). For the history of
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