14 year rule - PET's and CLT's

I would be most grateful for some advice on what (if any) tax may be due in this situation.

Mr A makes a CLT in Jan 2008 of say £175,000. Assume there were no PET’s or CLT’s prior to that date.

He then makes various PET’s in the years 2013 - 2020 totalling £70,000 (assume for these purposes £10,000 p/a). We don’t have details of any PET’s between 2008 and 2013 (there are no CLT’s between those two dates).

He dies in 2020 leaving a chargeable estate of £245,000.

My questions are:

  1. Is it relevant if there are any PET’s between 2008 and 2013. (2013 being 7 years before he died)

  2. Do we only need to look at PET’s within 7 years of the CLT ie up to 2015 or do they all get caught?

  3. Does the timing of these gifts mean that the estate has only £80,000 of NRB to be applied, leaving the rest chargeable to IHT?

Many thanks

N Waldman

As death occurs more than 7 years after the date of the CLT, it does not affect the IHT liability on death.

However, it will have the effect of reducing the available nil rate band on any chargeable transfer occurring within the 7 years after the date of the CLT. This will include not only transfers of value immediately chargeable to IHT, but also failed PETs.

In answer to the specific question:

1 – No, as these will have no IHT consequences

2 – No, you only look at PETs made within the 7 years immediately before death

3 – Taking into account annual IHT allowance, if the deceased was making gifts totalling £10,000 every year (not just in the last 7), his NRB may have been reduced by £49,000, leaving an NRB of £276,000 available to his estate on death.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Many thanks for your reply.

So, have I understood correctly that the CLT does not reduce the NRB available for the failed PET’s (even though some of them were within 7 years of the CLT)?

And that further to that, the NRB available on death is only reduced by the value of the PET’s in the last 7 years of Mr A’s life (taking into account annual IHT allowance) – and the CLT is irrelevant here?

Nicola Waldman | Partner | For Hodge Jones & Allen Solicitors

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Yes, your understanding is correct.

In essence, the CLT only affects the IHT on taxable transfers of value (including failed PETs) that occur within the 7 years immediately following the date on which it was made.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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