Inheritance Tax Act 1984 section 29A

Abatement of exemption where claim settled out of beneficiary's own resources

Section 29A reduces the inheritance tax exemption available on a death transfer where the exempt beneficiary settles a claim against the deceased's estate using their own property rather than property they received from the estate.

• Where an exempt beneficiary (such as a surviving spouse, charity, or political party) settles a claim against the deceased's estate using their own resources, the IHT exemption on the death transfer is reduced accordingly.
• The reduction equals the fall in value of the exempt beneficiary's own estate caused by the disposition, and this amount is reclassified as a chargeable specific gift rather than an exempt gift.
• When calculating the fall in value of the exempt beneficiary's estate, no deduction is allowed for the claim itself, no account is taken of any tax liability arising, and business property relief and agricultural property relief are both ignored.
• This rule does not apply where the claim relates to a liability that is already taken into account in valuing the deceased's estate for IHT purposes.

---