Trusts and Inheritance Tax

Allocation of the tax burden

Produced by Tolley
  • 23 Mar 2022 10:45

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Allocation of the tax burden
  • Who bears the tax?
  • Allocation of the nil rate band
  • Apportioning tax to different components of the estate
  • Instalment and non-instalment property
  • Exempt or relieved assets and liabilities
  • Tax free gifts
  • Exempt beneficiaries
  • Distributions

Allocation of the tax burden

Who bears the tax?

The basic premise of inheritance tax (IHT) is that it is a tax on a transfer of value calculated with reference to the transferor’s status. Tax on death is calculated as a total charge as if the deceased made a transfer of value of the whole of his estate.

It is therefore a tax on the deceased but it is effectively borne by the beneficiaries of his estate: the value of their inheritance can be reduced by the tax on it. In a situation where the estate is distributed among a number of people, the question arises as to how to share the tax between them. This affects what they receive, and, in turn, what they receive may have an effect on the tax liability if they enjoy an exempt status.

There is a distinction to be drawn between incidence of tax and liability. Incidence refers to who, ultimately, bears the burden of tax and the proportions in which it is shared out. Liability refers to who has a responsibility to pay the tax, the rules for which are set out in IHTA 1984, s 200.

This guidance note is concerned with incidence and provides an overview of the issues to be considered in allocating the burden of tax to beneficiaries. It provides links to other guidance notes and examples which examine certain aspects in more detail.

Allocation of the nil rate band

In accordance with the cumulation principle, the nil rate band is applied chronologically.

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Popular Articles

Time to pay arrangements for tax due under self assessment

A time to pay arrangement, which may also be referred to as TTP in practice, is a negotiated agreement between HMRC and the taxpayer to allow for tax to be paid after its due date.The guidance in this note applies to individuals under self assessment and companies paying corporation tax. It does not

22 Mar 2022 09:50 | Produced by Tolley Read more Read more

Pre-owned assets tax

Where a donor has made a gift of property and continues to use or benefit (or may benefit) from that property in some way, he may have made a gift with reservation of benefit for the purposes of inheritance tax (IHT).However, this will not be the case where:•a donor makes a gift of cash and the

23 Mar 2022 10:59 | Produced by Tolley Read more Read more

Quoted companies ― an overview

What is a quoted company?Reference to a quoted company is usually to a company where the shares in the company are listed on the London Stock Exchange, any other international stock exchange, or on AIM or ICAP Securities and Derivatives Exchange (formerly the PLUS market and now known as ISDX) in

22 Mar 2022 12:12 | Produced by Tolley in association with Andrew Rainford Read more Read more