The words used in s52 (1) are “comes to an end” and he is treated “as if at that time he had made a transfer of value and the value transferred had been equal to the value of the property in which his interest subsisted”. It is a lifetime transfer under s3 not s4 and a PET if s3A applies. He is deemed to make a transfer of value. You are virtually unique if you do not accept this. Whether it is logical or not it is the law!
The IHT charge on the death of LT is also not a matter of logic but of statutory interpretation.The wife’s prior death with the full spouse exemption is relevant only in that it may found a claim by the husband’s PRs for TNRB and TRNRB. The TNRB can be set against a failed PET but the TRNRB can only be used against the death estate and not the failed PET.
If the LT survives by 7 years the PET is exempt. If not it becomes chargeable by virtue of the death but charges on the value at the time of gift and LT’s available nil rate band, own and transferred, is applied to it before the death because it remains a lifetime transfer. See IHTM14512. The IHT if any on the PET is the liability of all or any of the persons in s199 (1)(2) a s205 IHTA. HMRC practice is set out very clearly in IHTM30041-54 and a great deal more lucidly than the statute. 30042 is crucial. Because s199 does not prioritise the persons liable HMRC go first for the transferee. They in the present case are the persons,“transferees”, who enabled it to qualify as a PET at the time of the gift under s3A(2)(a), namely the individual remaindermen to the IPDI right of occupation.
If and so far as they do not cough up HMRC will resort to the transferor’s PRs even though the transferor received no part of the value transferred. s205 means that the PRs have no right of recourse to any other person liable. This is a very uncomfortable position for the PRs and the estate beneficiaries: 30044. When the QIIP holder has bargaining power, because his interest will only terminate if he agrees to that, he can extract a contractual undertaking from the remaindermen, enforceable by his PRs, that they will pay any IHT and can even take security. Or he can bargain for a slice of the fund if liquidity permits and that will reduce the TOV of the PET: s52(2). The trustees cannot do this as they have no liability under s199 whereas they do under s200 where the QIIP ends on the death of its owner.
Where a right to occupy type of QIIP ends automatically the LT has very little bargaining power of the above nature unless the right can endure for a long future period and his ceasing residence will accelerate the remainder by some significant period of time. Granting a right of occupation needs careful thought as to the consequences of its lifetime termination whether granted for a life or a fixed or determinable period. The grantee should look this gift horse in the mouth. A contractual tenancy for a term close to life expectancy on favourable terms, which is not a lease for life so not an interest in a settlement, will be an exempt spousal gift of often significant value and eligible for CGT PPRR. A life interest coupled with a letter of wishes that can be terminated by a trustee power of appointment with the LT’s consent is best of all.
None of this, though complex until you have done a few cases, is rocket science and it is concerning that your questions are extremely basic for anyone dealing with these matters.
Jack Harper
Because s199
| OlgaW Olga Washington
8 July |
Hi Jack
Thank you very much.
Although I completely accept S52 position re PET but I cannot find definition of ‘termination’ e.g. on what terms, especially when I look at S3 IHTA84 .
Re S3 - How can ‘LT’ make a disposition/transfer of any kind as he has ‘nothing’ to transfer/dispose of at the end of the prescribed right of occupation?
This what made me think that this does not make it a PET if the ‘LT’ no longer has right of occupation as the prescribed period has ended as per the terms of the will (and he has survived the given period and has not gave it up during the same). (S3(3)IHTA84)
In regard to the IHT100b, and apologies for not making it clear. The wife’s estate (first) death is taxable but of course on her death, spousal exemption applied so no IHT was due at that time. My logic is that the IHT apportioned to the property will be due once the right of occupation has ended and as the property is held by the trustees and according to S200 IHTA84, trustees are then liable for this IHT.
If say it is considered as a PET, and if the husband survives the 7 years, when and by whom would the IHT attributable to the property will be paid, in which he has no interest at the time of his death?
Sorry! This really has rattled my brain.
Huge thanks again.