IV. Quick-Succession Relief
24.B7. The principles to be followed in granting quick-succession relief are outlined in paragraph 24.48. The application of the principles is illustrated below:
Example 1
Assume that the estate of John Smith, on his death, is made up as follows:
| $ | |
| House: value on death | 60,000 |
| Shares: value on death | 120,000 |
| Moneys on deposit or in hand | 30,000 |
| 210,000 | |
| less Capital gains tax on death | 20,000 |
| Net value of the estate | 190,000 |
Assume that Smith, during his life, gave $50,000 to his wife and made no other non-exempt gifts. Assume that Smith leaves the whole of his estate to his wife. Duty will be assessed on $180,000, i.e. $190,000 less the remaining $10,000 of the wife's exemption (paragraph 24.34), all but $10,000 of the exemption having been used before death. Duty, on the basis of the scale in paragraph 24.B2, will be $30,000. Assume that Mrs Smith dies 3 years later, leaving an estate with a net value of $230,000. The house and share portfolio bequeathed to Mrs Smith may form part of the estate or may have been sold. This will not affect the quick-succession relief. The full relief will be available in that Mrs Smith has died within 5 years of her husband's death and because the estate (net value $230,000) may be assumed to include an amount equivalent to the value of the inherited assets ($190,000). Assume that the scale in paragraph 24.B2 has not been changed and that the whole estate is left to the adult children of Mr and Mrs Smith:
| $ | |
| Duty on $230,000 | 48,000 |
| less Relief | 30,000 |
| Duty payable on Mrs Smith's estate | 18,000 |
24.B8. In example 1, it was assumed that no change in the rate scale occurred between the deaths of Mr and Mrs Smith. As indicated in paragraph 24.51, where there has been a change in the width of slices in the rate scale to take account of inflation, the Committee favours measures to bring about an equivalence in value between tax paid on an inheritance and tax against which relief is available. These measures should relate a gift or an estate to slices and parts of slices in the rate scale so that, if the scale has thus varied, so too will the quantum of the gift or estate. The following examples of quick-succession relief illustrate the principle.
Example 2
Assume that, in example 1, Mrs Smith dies exactly 9 years and 1 month after her husband and that, on her death, the
rates are those in paragraph 24.B5. The tax on the death of Mr Smith was $30,000, assessed on an estate of
$190,000. The equivalent of an estate of $190,000, under the scale in paragraph 24.B5, is one of $205,333, and
the
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equivalent tax on such an estate is $38,720. Mrs Smith's estate (net value $230,000) can be
assumed to include an amount equivalent to the value of the inherited assets ($205,333), so that the whole of the
$38,720 less four-tenths of it (9 complete years having elapsed since the death of Mr Smith) will be available as
a credit:
| $ | |
| Duty on $230,000 | 47,960 |
| less Relief (6/10 × $38,720) | 23,232 |
| Duty payable on Mrs Smith's estate | 24,728 |
Example 3
Assume that, in example 1, Mr Smith left half his estate to his wife and the other half on trust for his wife during her life and thereafter to his adult son. Assume that Mrs Smith dies 9 years and 1 month after her husband and that, on her death, the rate scale in paragraph 24.B5 applies, that the value of the assets in the trust fund is $120,000, that the value of Mrs Smith's actual estate is $30,000, and that Mrs Smith leaves her actual estate to her adult son. The equivalent of an estate of $95,000 (i.e. ½ × $190,000) under the scale in paragraph 24.B5 is an estate of $104,500, and the equivalent tax on such an estate is $19,965 (i.e. ½ the tax on 2 × $104,500). Mrs Smith's estate will be:
| $ | |
| Actual | 30,000 |
| plus Life estate | 120,000 |
| 150,000 | |
| Duty on $150,000 | 20,460 |
| Duty attributable to trust estate $120,000/$150,000 × $20,460 | 16,368 |
The trust estate (net value $120,000) may be assumed to include an amount equivalent to the inherited assets ($104,500)—indeed, unless the trustee has made distributions from corpus it can always be assumed to include such an amount—so that part of the relief will be available:
| $ | |
| Duty on the trust estate | 16,368 |
| less Relief (6/10 × $19,965) | 11,979 |
| Duty payable by the trust estate | 4,389 |
Mrs Smith's actual estate ($30,000) cannot be assumed to include all of the inherited assets ($104,500), so that the relief will be limited as follows:
| $ | ||
| Duty on Mrs Smith's actual estate | $30,000 × $20,000 | 4,092 |
| $150,000 | ||
| less Relief | (6/10 × $30,000 × $19,965) | 3,434 |
| $104,500 | ||
| Duty payable on actual estate | 658 |