I have a situation where the PET was made less than 7 years ago, so the beneficiaries will have to pay IHT on the demise of the donor. However, since the gift, one of the beneficiaries has passed it to his spouse (the other beneficiary).
Does the wife have to pay the IHT on both halves of the gift in accordance with s199© IHTA
“so far as the tax is attributable to the value of any property, any person in whom the property is vested (whether beneficially or otherwise) at any time after the transfer, or who at any such time is beneficially entitled to an interest in possession in the property.”
Lambert Chapman LLP
I believe the established view is that the donee of a failed PET is primary liable for any IHT arising on the gift. However, I am unaware of the precise authority for this view.
IHTA 1984 nowhere sets out the priority amongst those possibly liable for the IHT on a failed PET (which may include not only the donee but others (see IHTA 1984 s.199(1)); in particular note IHTA 1984 s.205.
However, on the basis that the donee is primary liable, in the absence of other exceptional circumstances (eg initial beneficiary was in fact receiving the gift as nominee for his spouse or the spouse gave away the gift in an attempt to avoid a legitimate tax charge etc) in practice HMRC are unlikely to proceed against the spouse (who is not primary liable). Should HMRC believe exceptional circumstances subsist and proceed against the spouse then the spouse would (in equity) have a right to recover any IHT paid from the person primary liable.
On external discussions on this matter, I think we have come to the same conclusion so thank you for your feedback. It’s strange that there isn’t more commentary or case law on this matter.
Lambert Chapman LLo