Gifts made during the lifetime

Trusts Discussion
1

Father made lifetime gift of a commercial property and foreign property to Son 1.
Fell out with son 1 and left all of his estate to Son2 .

Early days in the administration but it looks like the failed pets will take up all of the nil rate band and there may be a small charge to inheritance tax. This means Son 2 has to pay all of the inheritance tax at 40%.

Am I right in thinking that the estate is fully liable for the IHT ??

Thanks

Collette

2

Son 1 should be liable for the IHT on the failed PETS, with the estate (and therefore Son 2) being liable for the IHT on the value of the estate.

There is the catch that if Son 1 does not pay the IHT within 12 months of the end of the month in which death occurred (s.204(8) IHTA 1984), HMRC may assess the liability upon the estate. There is no obligation upon HMRC to try to obtain payment from the beneficiary of the failed PET (in this case Son 1) before requiring payment from the PRs. Arguably, the estate will have a right of recovery from Son 1 for the IHT paid on the failed PET. This is a particular situation that I have felt uncomfortable about for many years.

I suggest that when submitting the IHT400, HMRC is asked to assess Son 1 directly for the IHT liability on the failed PET.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

Thank you Paul.

If it transpires that all the lifetime gifts fall below the nil rate band then I assume that there is no liability for Son 1 at all.

Many thanks

Collette

4

That’s right. If PETS are made during lifetime they can totally eat up the nil rate band leaving the estate to pay IHT on the estate.

Julian Cohen

Simons Rodkin

5

Hi Collette

That’s correct, if all of the lifetime gifts fall within the nil rate band there will be no IHT liability on Son 1.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals