Date of 7 year survival period

Trusts Discussion
1

Just looking for some clarity on the 7 year end period, If a gift was made on 15 January 2018 and the donor dies on 14 January 2025 is this a failed PET. It would seem so by 3A(4) IHTA1984 but not sure how or if 3A(5) is relevant. Thank you

2

My understanding is that in the circumstances, as described, it will be a failed PET.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

3A(5) refers to “anniversary” whereas s3A(4) refers to “year”.

During the period beginning on the date of a potentially exempt transfer and ending immediately before—

(a)the seventh anniversary of that date, or

(b)if it is earlier, the death of the transferor,

it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer."

Re the above the seventh “anniversary” of the date of 15 January 2018 would be 14 January 2025. Hence PET is exempt.*

(4) A potentially exempt transfer which is made seven years or more before the death of the transferor is an exempt transfer and any other potentially exempt transfer is a chargeable transfer.

Re the above a “year” is presumably 365 days. 7 years therefore equals 7x365 = 2,555.
If death occurred on 14 January 2025 and PET was made on 15 January 2018 then 2555 days are included. Hence PET exempt.

Malcolm Finney

2 Likes
4

Hi thanks very much for your comments, I took the ‘anniversary’ of the PET to be on the day i.e. 15/1/2025 as an anniversary is usually the date on which an event takes place i.e. a wedding anniversary is celebrated on the day and not the day before and so for 3A (5) the period begins 15/1/2018 and ends immediately before 15/1/2025 OR immediately before death if earlier and as death was on 14/1/2025 I took the immediatley before to be 13/1/2025. As the gift was made 15/1/2025 I thought would be chargeable. For (4) I wonder if leap years need to be considered. Am just nervous about treating this as exempt as its a substantial amount and I have never had one where the question of 7 years is debatable.

5

Seem to me that the gift is only exempt if you reduce the 7 year period to individual days, based on a “standard” 365 day year. I have not seen this argument adopted before as, usually “days” mean day, “months” mean months (however many days there are in the month(s)in question) and “years” mean years.

I remain of the view that the gift in question is a failed PET.

If the amount in question is substantial, might it be appropriate to obtain counsel’s opinion, which will protect you from claims by HMRC or the client, depending upon the outcome.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

6

Thanks Paul. I appreciate your comments.

7

I agree with Paul (for what it is worth).

A “year” must mean a calendar “year”. If you reduce it to 365 days then the answer will become more absurd the longer the period. Over a 20 year period (eg. tax assessment due to deliberate act), you might lose 4-5 days from leap years.

8

Is there agreement that if the gift was made on 15 January 2018 with death on 14 January 2025 the 7th anniversary occurs on 15 January 2025 and immediately before that anniversary is 14 January 2025.

If so, under s3A(5) the gift is exempt?

Malcolm Finney

9

Hi Malcolm but is it not saying immediately before the date of death if earlier . I read it to mean the earlier of day before anniversary or day before date of death ?

10

If s.3A(5) is construed on the manner suggested, then any PET made in the period before the donor’s death is an exempt transfer. How else might one construe: – “(a) the seventh anniversary of that date, or

(b) if it is earlier, the death of the transferor” (my emphasis).

The closing words of (5) are: “it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer”, which I suggest put the rest of the sub-section into context – the PET is ignored for the purposes of the Act until either a period of 7 years has expired (when sub-section 4 then applies), or the donor dies, at which time the exemption falls away and the PET ceases to be exempt (whichever happens first).

On that basis it is only s.3A(4) that needs to be considered and as the 7th anniversary of the gift was 15 January 2025, and the donor died on 14 January 2025, the PET failed.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

11

Apologies. Hopefully the following is clearer.

S3A(4) provides that a PET is exempt after 7 years has passed without the donor dying.

But what happens in the meantime ?
S3A(5) provides that it is assumed that the donor will survive at least 7 years unless death occurs within 7 years (thus becoming chargeable). In particular s3A(5) in part states:
“… it shall be assumed for the purposes of this Act…”.

Malcolm Finney

12

Malcolm, I have never heard it said that the anniversary of an event on day x falls on day x-1 in any subsequent year (unless perhaps the day in question was 29 February!)! My brother was born on 26 May. His birthday - the anniversary of his birth - is 26 May, not 25 May.
And a year is a year, whether it has 365 days or 366.

13

Alexander, you are of course quite right ie in your example “My brother was born on 26 May. His birthday - the anniversary of his birth - is 26 May, not 25 May”.

I think my posts show some muddled thinking on my part !! Apologies to all.

Malcolm Finney

14

Nobody has mentioned the definition of a year in the 7 year period
It seems to be assumed that a year is 365 days but a leap year is of course 366 days.
So within any 7 year period there will be a leap year with an extra day which would qualify the gift for a full 7x365 day period.
Also surviving until the day before the date of the gift means that the donor has survived into the 365th day so has survived 365 days ( or a full year ) which completes the 7 year survival period

15

Is not the key to which date the words “if it is earlier” in (b) refer? Does it mean if the death is earlier than the date in clause (a) ie the 7th anniversary of the PET, or does it mean if the death is earlier than the date referenced in the clause preamble - ie was it earlier than the day before the 7th anniversary. The 7 year period ends on 14th quite clearly. 15th is the first day of the 8th year. If the deceased died on 14th they were also alive on 14th until they were not.

16

In s3A IHTA 1984 the words contained in s.(5(b) “it is earlier” refers to the the period ending on death if earlier than the date of the seventh anniversary referred to in s.(5)(a).

Malcolm Finney

17

Hi Malcolm, might I refer you back to my post of 29 January, timed @ 15.13:

If s.3A(5) is construed on the manner suggested, then any PET made in the period before the donor’s death is an exempt transfer. How else might one construe:

“(a) the seventh anniversary of that date, or

(b) if it is earlier, the death of the transferor” (my emphasis).

The closing words of (5) are: “it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer”, which I suggest put the rest of the sub-section into context – the PET is ignored for the purposes of the Act until either a period of 7 years has expired (when sub-section 4 then applies), or the donor dies, at which time the exemption falls away and the PET ceases to be exempt (whichever happens first).

On that basis it is only s.3A(4) that needs to be considered and as the 7th anniversary of the gift was 15 January 2025, and the donor died on 14 January 2025, the PET failed.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

18

Hi Paul

You say “If s.3A(5) is construed on the manner suggested, then any PET made in the period before the donor’s death is an exempt transfer. How else might one construe”.

s3A(4) provides a straight forward definition of when a PET falls to be exempt [ie when a PET is made 7 seven years or more before death].

s3A(5), however, serves a different purpose. It indicates how a PET is to be treated during the period from the date the PET is made and which is the earlier of seventh anniversary and earlier death (under (a) and (b) respectively). More specifically, it confirms that if (a) or (b) applies the PET is to be treated as exempt during those periods in (a) or (b).

S3A(b) is not saying, as you suggest, that “any PET made in the period before the donor’s death is an exempt transfer”.

S3A(a) and (b) merely explain the concept that a PET is, from the date it is made, to be treated as exempt (although this is not initially known) pending clarification of the position after seven years or, if earlier, date of death.

Malcolm Finney

19

As an aside - is not your birthday marking the end of your, say, 50th year (which would have ended at midnight on the day before the one marking the anniversary of your birth) and the start of your, say 51st year, which starts on that day of your birthday anniversary. Just saying…

20

Hello, I am a mere trainee solicitor within PC but was wondering if you have considered taper relief? If any IHT is due it should be substantially reduced given that you are so close to the 7 years.