Section 165 — Inheritance Tax Act 1984: Tax on capital gains.

Tax on capital gains. 165 1 Where a chargeable transfer is or includes a disposal of an asset and on the disposal a gain accrues to the transferor for the purposes of the 1992 Act , then if—

a the whole or part of the gain is a chargeable gain or a development gain, and b the whole or part of any capital gains tax or income tax chargeable on the gain is borne by the donee (within the meaning of section 282 of that Act), the amount of the tax so borne shall be treated as reducing the value transfered by the chargeable transfer.

2 Subsection (1) above shall not apply where the chargeable transfer is made under Part III of this Act and the gain accrues to the trustees of the settlement; but if in such a case any capital gains tax chargeable on the gain is borne by a person who becomes absolutely entitled to the settled property concerned, the amount of the tax so borne shall be treated as reducing the value transferred by the chargeable transfer.

3 In any case where—

a payment of an amount of capital gains tax is postponed by virtue of Schedule 14 to the Finance Act 1984, and b any of that capital gains tax becomes payable in accordance with paragraph 11 of that Schedule by reason of the receipt of a capital payment by a close relative of the beneficiary, as mentioned in sub-paragraph (3) of that paragraph, and c all or part of the capital gains tax becoming so payable is paid by the close relative, the payment by the close relative shall be treated for the purposes of this Act as made in satisfaction of a liability of his.