Inheritance tax is levied on “transfers of value”, meaning:
- the estates of deceased persons;
- gifts made within seven years of death (known as Potentially Exempt Transfers or “PETs”);
- “lifetime chargeable transfers”, meaning transfers into certain types of trust.
- The first slice of cumulative transfers of value (known as the “nil rate band”) is free of tax. Over this threshold the rate is 40 percent on death or 36 per cent if the estate qualifies for a reduced rate as a result of a charitable donation
- Transfers of value between United Kingdom-domiciled spouses are exempt from tax.
- Gifts made more than seven years prior to death are not taxed; if they are made between three and seven years before death a tapered inheritance tax rate applies. There are some important exceptions to this treatment: the most important is the “reservation of benefit rule”, which says that a gift is ineffective for inheritance tax purposes if the giver benefits from the asset in any way after the gift (for example, by gifting a house but continuing to live in it).
- Inheritance Tax is not levied on the estate of persons who died “on active service” or from the effects of wounds sustained on such service…regardless of how long after that may be if it can be proven as the cause of death. In addition as the deceased spouse is subject to an exemption that full nil rate band is transferable to the surviving spouse’s estate on the survivor’s death.
- Council tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge (“poll tax”), which had (briefly) replaced the Rates system. The basis for the tax is residential property, with discounts for single people.
Sales taxes and duties
- Value added tax – The third largest source of government revenues is value added tax (VAT), charged at 20 percent on supplies of goods and services. It is therefore a tax on consumer expenditure.
- Certain goods and services are exempt from VAT, and others are subject to VAT at a lower rate of 5 percent (the reduced rate, such as domestic gas supplies) or 0 percent (“zero-rated”, such as most food and children’s clothing).
- Excise duties – Excise duties are charged on, amongst other things, motor fuel, alcohol, tobacco, betting and vehicles.
- Stamp duty – Stamp duty is charged on the transfer of shares and certain securities at a rate of 0.5 percent. Modernized versions of stamp duty, stamp duty land tax and stamp duty reserve tax, are charged respectively on the transfer of real property and shares and securities, at rates of up to 4 percent and 0.5 percent respectively
- Motoring taxation – Motoring taxes include: fuel duty (which itself also attracts VAT), and Vehicle Excise Duty. Other fees and charges include the London congestion charge, various statutory fees including that for the compulsory vehicle test and that for vehicle registration, and in some areas on-street parking (as well as associated charges for violations).