Budget Notes


Who is likely to be affected?

1. Individuals, executors and personal representatives of estates of people who have died.

General description of the measure

2. The 2007 Pre-Budget Report (PBR) announced that legislation would be introduced in Finance Bill 2008 to allow any IHT nil-rate band unused on a person's death to be transferred to the estate of their spouse or civil partner who dies on or after 9 October 2007. More details can be found in PBR Note 16.

3. This Note sets out details of a consequential amendment to capital gains tax (CGT) provisions to prevent the revision of the valuation of the base cost of an asset for CGT purposes where the valuation of that asset is subsequently ascertained for IHT purposes.

Operative date

4. The change to the CGT provision will have effect on and after 6 April 2008.

Current law and proposed revisions

5. Section 274 of the Taxation of Capital Gains Act 1992 (TCGA) provides that where the value of an asset in a deceased person's estate has been ascertained for IHT purposes, that value also has effect for CGT purposes. The value of an asset transferred from a deceased's estate will not be determined for CGT purposes until a subsequent disposal of that asset. So generally, where the value of an asset needs to be ascertained for IHT purposes, this will occur on the death of the individual and so before the value of that asset is ascertained for CGT purposes.

6. In some cases the changes announced at 2007 PBR will mean that, to calculate how much nil-rate band can be transferred from the first deceased spouse's estate, the value of assets in that estate will need to be determined when the second spouse dies. In these circumstances, if the value of the asset differs from any already agreed for CGT purposes, section 274 of TCGA would require CGT to be recalculated on the basis of the value agreed for IHT purposes.

7. This measure will ensure that the requirement under section 274 of TCGA to use the IHT valuation for CGT purposes will not have effect where the valuation of an asset does not have to be ascertained for IHT purposes on the death of an individual. So, for example, if the IHT valuation of an asset does not have to be ascertained until the death of the surviving spouse in order to establish the nil-rate band that may be transferred, then section 274 of TCGA will not require that value to be used for any CGT calculation.

Further advice

8. If you have any questions about this change, please contact the Inheritance Tax & Probate Helpline on 0845 3020900. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk