IHT on lifetime gifts with impact of earlier chargeable transfer

Trusts Discussion
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Client died on 01/11/20 and had made a long stream of PETs in the 7 years from 01/11/13 to the date of death. There was a chargeable transfer of £325k to a discretionary trust on 22/03/10 and so nil rate band used for 7 years to 22/03/17. This impacts on the IHT re the failed PETs in the period 01/11/13 to 22/03/17 and HMRC has agreed all my figures, with correct taper relief, re those gifts. I “reinstated” the nil rate band on 22/03/17 and then applied it to the PETs in date order from then. However, HMRC is NOT reinstating the nil rate band and is taxing these later PETs in full - with the correct 20% taper relief re the 22/03/17 to 01/11/17 PETs. Who is correct? If I am can anyone locate an article etc that would illustrate this process so that I can persuade HMRC to give us the missing NRB? Any help gratefully received! Thanks

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I suspect HMRC are correct. The failed PETs are no longer PETs, but chargeable transfers, just like a transfer into a discretionary trust. So, for example, when considering the IHT due on a gift made in 2018, you have to take into account all the chargeable lifetime transfers made in the 7 years before that gift, which would include any failed PETs in the period 2013 to 2018.

Diana Smart
Gordons LLP

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I agree with HMRC that there is no reinstatement of the NRB effective 22.3.17.

Malcolm Finney

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Thanks - I had a feeling that was the outcome!