Section 38 | Attribution of value to specific gifts.

(1)Such part of the value transferred shall be attributable to specific gifts as corresponds to the value of the gifts; but if or to the extent that the gifts—

(a)are not gifts with respect to which the transfer is exempt or are outside the limit up to which the transfer is exempt, and

(b)do not bear their own tax,

the amount corresponding to the value of the gifts shall be taken to be the amount arrived at in accordance with subsections (3) to (5) below.

(2)Where any question arises as to which of two or more specific gifts are outside the limit up to which a transfer is exempt or as to the extent to which a specific gift is outside that limit—

(a)the excess shall be attributed to gifts not bearing their own tax before being attributed to gifts bearing their own tax, and

(b)subject to paragraph (a) above, the excess shall be attributed to gifts in proportion to their values.

(3)Where the only gifts with respect to which the transfer is or might be chargeable are specific gifts which do not bear their own tax, the amount referred to in subsection (1) above is the aggregate of—

(a)the sum of the value of those gifts; and

(b)the amount of tax which would be chargeable if the value transferred equalled that aggregate.

(4)Where the specific gifts not bearing their own tax are not the only gifts with respect to which the transfer is or might be chargeable, the amount referred to in subsection (1) above is such amount as, after deduction of tax at the assumed rate specified in subsection (5) below, would be equal to the sum of the value of those gifts.

(5)For the purposes of subsection (4) above—

(a)the assumed rate is the rate found by dividing the assumed amount of tax by that part of the value transferred with respect to which the transfer would be chargeable on the hypothesis that—

(i)the amount corresponding to the value of specific gifts not bearing their own tax is equal to the aggregate referred to in subsection (3) above, and

(ii)the parts of the value transferred attributable to specific gifts and to gifts of residue or shares in residue are determined accordingly; and

(b)the assumed amount of tax is the amount that would be charged on the value transferred on the hypothesis mentioned in paragraph (a) above.

(6)For the purposes of this section, any liability of the transferor which is not to be taken into account under section 5(5) above or by virtue of section 103 of the Finance Act 1986 shall be treated as a specific gift and to the extent that any liability of the transferor is abated under the said section 103, that liability shall be treated as a specific gift.^F1