Chapter: 2 - Inheritance Tax Mitigation: The Basics

Dispositions which are not transfers of value

2.1.4

There are some dispositions which on the ‘estate before less estate after’ principle reduce the estate but are not transfers of value, viz.:

• those not intended to confer a gratuitous benefit, provided either they were made in a transaction at arm’s length between unconnected persons (eg a ‘bad bargain’ to other than a member of the family) or they were such as might be expected to be made in an arm’s length transaction between unconnected persons (IHTA 1984 s10);
• dispositions for the maintenance of the family (IHTA 1984 s11).  A member of the family includes a spouse/civil partner, an ex-spouse/civil partner and a child (including a step-child and an adopted child).  A disposition will not be a transfer of value if made to a spouse/civil partner or a child of the transferor or spouse/civil partner which is either for maintenance or, where for a child, for maintenance, education or training up to the age of 18 or later cessation of full-time education or training.  The disposition may take the form of a transfer of capital (see 13.2.1 and McKelvey v HMRC (2008) SpC 694);                                                             
• a disposition which is allowable in computing profits or gains for Income Tax or Corporation Tax or, specifically, a contribution under a registered pension scheme (IHTA 1984 s12);
• a disposition of property made to trustees by a close company for the benefit of its employees (IHTA 1984 s13);
• the waiver or repayment of remuneration to the extent that it would be taxable employment income (IHTA 1984 s14);
• a waiver of dividends within twelve months before the right accrues (IHTA 1984 s15);
• the grant of an agricultural tenancy in the UK, Channel Islands or Isle of Man if for full consideration in money or money’s worth (IHTA 1984 s16); or
• certain post-death variations or disclaimers or transfers on ‘precatory trusts’: see 2.13 and Chapter 19 (IHTA 1984 s17).  So, for example, a written variation or disclaimer by the original beneficiary of an inheritance under a Will or an intestacy, made within two years after the death, is treated as if it were made by the deceased under his Will (IHTA 1984 s142).

These provisions protect only an  inter vivos disposition from being a transfer of value.  That is, for example, a gift under a Will for the maintenance of a member of the family (other than a spouse, which is exempt) will be a chargeable transfer, whereas had it been made by the individual on his deathbed, it might not have been a transfer of value at all.