History of inheritance taxes in the United Kingdom
The history of inheritance taxes in the United Kingdom has undergone significant change and mutation since their original introduction in 1694.
Probate duty was introduced as part of the Stamps Act 1694, in order to help finance England's involvement in the War of the League of Augsburg.
[1] It originally applied to all probates of wills and letters of administration for personal estates valued greater than £20, at a fixed duty of 5 s. (one crown, or a quarter of a pound).
[1] It was converted into a graduated rate in 1780 by Lord North, as a consequence of financing British activity in the American Revolutionary War.
[1] Penalties for failing to file probate or administration documents were introduced in 1795, and accounts for calculating liability were first required in 1805.
In that regard, real property was included in its scope, but only on the life interest therein, as opposed to its full market value.
Where any legacy,[a 3] residue or any share of residue is greater than £20:[a 4] Applies to every succession (conferred by disposition or operation of law) to the beneficial enjoyment of any real or personal property, or to the receipt of any portion or additional portion of the income or profits thereof, upon or in consequence of the death of any person.
With respect to real property, succession duty ceased to be calculated on the value of the life interest in the succession, being instead based on the principal value of the property after deducting the liability for related estate duty, together with expenses incurred in raising funds for paying it.
It became more highly progressive over time, with the highest marginal rates fixed as follows: The complexity and unfairness in how the duties were applied was discussed by Stafford Cripps in his 1949 Budget speech: The Legacy and Succession Duties also have the drawback that they impose a proportionately heavier burden on the small than on the large estate.
In his 1974 Budget speech, Denis Healey, then Chancellor of the Exchequer, declared: Nothing is more offensive to the vast majority of ordinary taxpayers, most of whom are subject to PAYE, than the knowledge that people far better off than themselves are avoiding taxation by exploiting loopholes in the existing law.
[72]This was implemented with the passage of the Finance Act 1975, which abolished estate duty[f] and created the capital transfer tax, with the following characteristics: CTT was reduced in scope during the Thatcher years,[80] with the rates applicable to gifts adjusted to encourage business property to be given during a lifetime, and a ten-year accumulation period introduced to cap the effect of graduated rates.
[81] Nigel Lawson, in his 1986 Budget speech, moved to abolish the tax on lifetime gifts altogether, explaining: My last proposal in this section concerns capital transfer tax which, ever since its introduction by the Labour Government in 1974, has been a thorn in the side of those owning and running family businesses, and as such has had a damaging effect on risk taking and enterprise within a particularly important sector of the economy.
In addition to statutory indexation of the threshold and rate bands, I propose this year to reform the tax radically.
But the lifetime gifts tax which the Labour Government introduced in 1974, in the teeth of united Conservative opposition, is an unwelcome and unwarranted impost.
[91] For deaths occurring after 5 April 2012, the tax is assessed at 36%, where at least 10% of a specified baseline amount of the estate has been bequeathed as charitable gifts.
[94] There are several options available for estates to be able to achieve that threshold, such as having the will specifying relevant gifts in terms of percentages of assets, or successors executing a deed of variation to attain the desired result.
