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2004 Budget Overview

Inheritance Tax

Rates

The nil rate band for cumulative chargeable transfers in the last seven years is £263,000 for gifts from 6 April 2004 onwards. Gifts above that are charged at the following rates:

Chargeable legacies on death 40% Gifts within 7 years of death 40%, with reductions if over 3 years before death Lifetime chargeable gifts 20% if the donee pays the tax, 25% if the donor pays

Payment

Inheritance Tax (IHT) on a deceased's estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but it must be paid before probate is granted, and this may necessitate earlier settlement. IHT on lifetime gifts is generally payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

The following transfers are exempt from IHT: * the first £3,000 gifted in a tax year (unused limit may be carried forward for one year) * small gifts of up to £250 to one person in a year * normal expenditure out of income * gifts between husband and wife, unless the donor is domiciled in the UK and the recipient is not * gifts between individuals more than 7 years before the donor's death (until the donor dies such gifts are left out of account as 'potentially exempt') * gifts in consideration of marriage - £5,000 from a parent, £2,500 from a grandparent or a party to the marriage, £1,000 from others Most business and agricultural property enjoys a 100% relief once it has been owned for two years, although some types of property are relieved only at 50%, and it is important to meet all the conditions.