The history of inheritance taxes in the United Kingdom has undergone significant change and mutation since their original introduction in 1694.
Duties before Finance Act 1894
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. 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). It was converted into a graduated rate in 1780 by Lord North, as a consequence of financing British activity in the American Revolutionary War. Penalties for failing to file probate or administration documents were introduced in 1795, and accounts for calculating liability were first required in 1805. As probate and administration were unknown in Scotland, inventory duty was introduced in 1804 to provide for similar liability there. Ireland introduced probate duty separately in 1774.
Legacy duty was also imposed in 1780, initially upon receipts or discharges given with respect to a legacy. As receipts were not in practice given or required, revenues were insignificant until William Pitt the Younger reformed the regime to require executors to account for the property in question, as well as varying rates according to the type of collateral succession. Further measures and later court decisions clarified the duty's extent.
Probate and legacy duty focused on the legacy of the estate, as opposed to its devise, thus excluding real property from taxation. Neither duty captured property passing by way of settlement, which was outside the scope of probate and administration. Succession duty was introduced by William Gladstone as a measure to capture more unearned wealth at the point of succession that would not otherwise be chargeable to legacy duty. In that regard, real property was included in its scope, but only on the life interest therein, as opposed to its full market value. Leasehold interests were excluded from legacy duty, thus having them fall within the new duty.
The administration of legacy and succession duties was integrated in 1881,Customs and Inland Revenue Act 1881, Part II with the requirement that no probate or letters of administration would be granted by the court if a court officer cannot certify that an affidavit has been filed stating the estate's value and stamped where liability for duty is shown.CIRA 1881, s. 30 Relief from legacy and succession duties at the rate of 1% was allowed on such affidavits and inventories filed and stamped,CIRA 1881, s. 38 and a penalty equal to double the amount of duty due was imposed on any person failing to file them on time.CIRA 1881, s. 40 Account duty was also introduced, charging certain gifts and voluntary settlements to be taxed.CIRA 1881, s. 38
Additional succession duties were introduced in 1888:Customs and Inland Revenue Act 1888, s.21
on any successor who is the lineal issue or lineal ancestor of the predecessor, 10 s. per centum (0.5%) in all other cases, £1 10 s. per centum (1.5%) but this additional duty does not apply to interests in leaseholds passing by will or by devolution by law, nor to property subject to account duty
Corporation duty was imposed in 1885,Customs and Inland Revenue Act 1885, Part II and a temporary estate duty in 1889 (intended to last until 1896),Customs and Inland Revenue Act 1889, Part II to encompass activities which the previous duties had not captured.
+ Scheme of UK succession taxes in effect prior to FA 1894 introduction of Estate DutyDuty Scope Paid RateProbate dutyKnown as inventory duty in Scotlandall testate and intestate estates (other than estates pur autre vie),Chatfield v Berchtoldt, (1872) LR 7 Ch Ap 192 with respect to personal property only where the deceased had UK domicile, debts and funeral expenses can be deducted from the gross value of the estate duty payable on all inventories, affidavits for probates and letters of administration, which must be obtained within six months after the deceaseOr within two months after the termination of any suit respecting the right to representation, which has not been ended with four months after the deathBy executor or administrator of estatefor estates less than £100, nil between £100 and £500, £1 per £50 (i.e., 2%) or part thereof between £500 and £1000, £1 5 s. per £50 (i.e., 2.5%) or part thereof above £1000, £3 per £100 (i.e., 3%) or part thereof
But, where the gross value of the personal estate is less than £300, a flat rate duty of 30 s. is payable on such estates valued between £100 and £300, which also satisfies any liability for legacy or succession duty.Legacy dutyImposed on all deceased persons with UK domicile. Initially imposed in 1780 as a duty on "every receipt or other discharge for any legacy," it was expanded in 1796 to include "every share or residue of the personal estate of any person dying and leaving such estate of the clear value of £100 or upwards." However, the 1796 Act also declared that money left to pay legacy duty was not chargeable to duty as a legacy. In 1805, duty is charged on legacies charged upon or made payable out of any real estate, or out of any moneys to arise from the sale of real estate. In 1815, duty was expanded to include the devolution of personal estate under a partial or total intestacy. In 1823, it was held that the forgiveness of debt due to a testator constituted a legacy. In 1845, the definition of "legacy" was expanded to include gifts made by will or testamentary instrument, as well as gifts made as donatio mortis causa. Only the will can determine what constitutes a legacy, and any secret trust outside it cannot change who the legatee is.Cullen v Attorney-General for Ireland, (1866) LR 1 HL 190 A bequest upon the trusts of a settlement, even if in satisfaction of a covenant, is chargeable with duty, the trusts in effect being incorporated in the will. In cases where property is disposed by way of a power of appointment, it has been held that a power arising from a will, will constitute a legacy, but one arising from a deed will constitute a gift not subject to duty. Rentcharges will give rise to duty, but it must be in general a charge in favour of one person on the estate of another. The gift of the next presentation to a living is a legacy, but the gift of an advowson is not. A general direction to sell land will render it liable to legacy duty, unless coupled with a direction to invest the proceeds in other real estate, or where a sale is made by order of the court for purposes unconnected with the trust.At the time of transfer (i.e., satisfaction, payment or discharge) of the legacy. Generally paid by the executor or administrator; otherwise, if received without deduction of duty, by the relevant trustee or legatee.Where any legacy,Including gifts of annuities or by way of annuity residue or any share of residue is greater than £20:Where a legatee receives two or more distinct legacies or benefits, they shall be grouped together
to any child, lineal descendant, parent or lineal ascendant, 1% to any brother or sister, or any of their descendants, 3% to any brother or sister of a parent, or any descendant of them, 5% to any brother or sister of a grandparent, or any descendant of them, 6% to all other persons, 10%Succession dutyApplies 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.Succession Duty Act 1853, s. 2
Disposition arises from any limitation, provision, condition or other act of man, written or unwritten, by means of which property is disposed of in favour of any particular person, body corporate, company or society named or sufficiently pointed out in such disposition. Devolution by law arises from the operation by which the law, in the absence of any act of man, carries property to particular persons, such as in the case of intestacy. The succession to be taxed is the right to possession. The beneficial interest accruing to a surviving joint tenant is deemed to be a disposition,Succession Duty Act 1853, s. 3 except where the joint tenants are husband and wife, as they hold the status of tenants by the entirety An increase in benefit arising from the extinction of any charge, estate or interest in property by the death of a person or at any period ascertainable only by reference to such death is deemed to be a succession,Succession Duty Act 1853, ss. 5, 20 but this does not apply to persons who, at the passing of the Succession Duty Act 1853, possessed estates subject to outstanding leases for lives,Succession Duty Act 1853, s. 6 or purporting to be leases at rack rentSuccession Duty Act 1853, s. 20
However:
Property may escape the tax forever by always passing inter vivos, but will be taxed when a succession accrues Property is exempt where it is already subject to legacy duty,Succession Duty Act 1853, s. 18; or is already exempt therefromSuccession Duty Act 1853, s. 18 Where the deceased does not have UK domicile, personal property in the estate will not be subject to succession duty, but where the resulting will creates a trust that assumes the character of a British settlement and British property, it is liable to duty upon the death of any person who has a limited interest in itAt the time the successor, or any person in his right or on his behalf, becomes entitled to possession of the property.
The value to be included is:
For personal property, the total value thereof For real property where the successor is a body corporate, company or society, the principal value of the property For all other cases of real property, excepting advowsons and timber, the value is considered to be in the nature of an annuity equal to the net annual value of the property, to be ascertained at the time the interest of the successor accrues In the case of a succession comprising timber, the value is the sum of the yearly rental in its uncultivated state, plus the net moneys derived from the sale of timber where they exceed £10 per year Duty arises on an advowson only where a sale is madeIn general, the same schedule of rates as for legacy duty.Succession Duty Act 1853, s. 10 However, where any person chargeable with succession duty with respect to any succession shall have been married to any wife or husband of nearer consanguinity than himself or herself to the predecessor, testator or deceased person, then the person taking such succession shall pay the same rate of duty as his or her spouse would have been chargeable with as if he or she had taken the succession directly.Succession Duty Act 1853, s. 11Account dutyPersonal or moveable property, being:
property taken as donatio mortis causa, or as an immediate gift inter vivos made within three months of death property, to which a person was absolutely entitled, which was vested in joint tenancy that accrues or passes by survivorship upon death property passing under any past or future voluntary settlement, by deed or any other instrument not taking effect as a will, where the settlor reserved the right to take back the absolute interest in the propertya beneficiary, trustee or any other person who acquires possession or assumes the management of any property included in the accountfor estates between £100 and £500, £1 per £50 (i.e., 2%) or part thereof between £500 and £1000, £1 5 s. per £50 (i.e., 2.5%) or part thereof above £1,000, £3 per £100 (i.e., 3%) or part thereof