Commentary

I3.701 Pre-owned assets—background

IHT, trusts and estates

I3.701 Pre-owned assets—background

Division I3.7     Pre-owned assets

Prepared by
DONALD DRYSDALE
NICHOLAS HARRIES

Revised by TERRY JORDAN

For updates affecting this Division please see 'Binder 8 updates'

Pre-owned assets—introduction

I3.701 Pre-owned assets—background

Inheritance tax has traditionally been regarded as relatively easy to avoid, particularly by those with substantial resources. Throughout the period from 1992 to 2003, average increases in UK house prices substantially exceeded the periodic increases in the inheritance tax threshold, which keeps in step with the retail prices index (until 6 April 2015; thereafter in line with the consumer prices index) unless Parliament determines otherwise1. The effect of this was to expose an increasing proportion of families to inheritance tax. As this growing exposure to tax arose largely on the value of ordinary homes, which could not easily be given away without creating gift with reservation problems (see Division I3.4), schemes of varying degrees of artificiality were devised to avoid the tax.

Foremost among such schemes were those which began in 1987, based on the principles later considered by the House of Lords in Ingram2. The taxpayer won this case, and the government reacted by introducing new legislation3 to outlaw similar schemes with effect from 9 March 1999.

Another widely used avoidance strategy which began in 1988 was

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