previous
next

Advance Provision for Payment of Tax

24.43. The prime concern of a person who seeks to provide in advance for payment of estate duty is the assurance that a fall in the value of money will not erode the value of this provision. One possibility would be a government issue of bonds whose redemption return is increased by reference to an index of general prices, the increase not being subject to income tax or capital gains tax. If bonds of this kind were more generally available, there would be no cause to introduce a special security offering protection against inflation for an investment intended to provide for payment of estate duty.

24.44. On the assumption that indexed bonds are not generally available, the Committee sees merit in a proposal that special probate bonds, indexed in an appropriate way, be issued. The method of indexation might take the form of the application of an index of general prices. Alternatively, it might be related to the rate structure of the integrated estate and gift duty, the redemption value of a probate bond being increased in conditions of inflation by reference to the change made to the rate structure. This redemption value would be available only on death and only to the extent that the redemption value does not exceed the estate duty payable. Where this redemption is available, the bonds would be included in the deceased's estate at that value. The bonds would carry interest at a lower rate than non-indexed government securities.

24.45. Probate bonds could be confined to the function envisaged for them if the special redemption value is available solely for the payment of duty in the estate of the original investor. Redemption for any other purpose would involve repayment only of the original investment.

24.46. There will be a nominal gain in the value of the bond due to the indexation applied to it. The element of nominal gain might, it is true, be obscured by the method of indexation that involves changes in the rate structure of the integrated estate and gift duty; but it would be evident if indexation by reference to general prices were used. The Committee's proposal to tax a fraction only of capital gains is intended to go some way towards excluding from tax gains that are only nominal, an objective which it is administratively impossible to achieve generally in any precise fashion. In the present context the objective can be achieved precisely by excluding from capital gains tax the nominal gain on the deemed realisation of a probate bond on death. The Committee recommends that the nominal gain be exempt from capital gains tax and from income tax.

previous
next