105 Allowance for prior tax on the same event

Summary

This section provides that where tax is charged more than once on the same property on the same event, the net tax which is earlier in priority will be deducted against the tax which is later in priority. This ensures that the same property is charged to tax only once.

Details

The scheme of the Act is to tax interests in possession and not to tax a future interest until such future interest becomes an interest in possession. Thus, if A settles property by will on B for life with remainder to C absolutely, 2 successive claims for inheritance tax arise—

• on A’s death, in respect of a life interest in the property taken by B from A, and
• on B’s death, in respect of an absolute interest in the property taken by C from A.

Section 32 deals with the situation where C, in this example, makes a gift of his remainder interest in the property to D. D takes a benefit from C which is not immediately taxable since it is not an interest in possession.

However, when B dies—

• under section 32(2), C takes an inheritance of the property from A (but D as “transferee” is liable for payment of the tax), and
• D takes an inheritance (“on a death”) of the same property from C.

Thus, 2 claims for tax arise in respect of the same property on the same event, i.e. B’s death, for which D is liable. (The inheritance taken by D from C is preserved by section 32(3)).

Section 105 ensures that where gift tax or inheritance tax is chargeable more than once in respect of the same property on the same event, the net tax payable which is earlier in priority will be allowed as a credit in ascertaining the tax which is later in priority.

Relevant Date: Finance Act 2015