T, who had made gifts of £100,000, a year later made a gift of an asset worth £225,000 into a discretionary trust, which did not trigger lifetime IHT. If at the 10-year anniversary, that gift is worth £325,000, is his base value for the 10-year charge nil or £100,000? If the former, no IHT latter then 6% IHT would be due on £100,000.

In another case, B transferred property of £300,000 to a discretionary trust by deed of variation of his mother’s estate, which did not suffer IHT as it was around £80,000 below the threshold after taking into account APR the NRB, TNRB RNRB and TRNRB. Is B’s starting point at the 10-year anniversary zero or a higher figure?

Thank you

Malcolm Sterratt
Foster Law

T
The ten yearly charge is computed as per s66 IHTA 1984.

The notional transfer immediately before the ten year charge is £325,000 (assume no prior exit charges, related property settlements etc).
The hypothetical chargeable transfer £325,000.
Cumulative chargeable transfers in prior 7 years nil (assuming £100,000 are PETs).
IHT chargeable is therefore on £325,000 ie nil.
Effective rate 30% of nil ie nil.
IHT payable 0% s £325,000 ie nil.

If £100,000 were CLTs then:
IHT chargeable is 20% x £225,000 = £45,000.
As a % rate is £45,000/£325,000 = 13.85%
Effective rate is 30% x 13.85% = 4.15%
IHT payable 4.15% x £325,000 = £13,487.

B
Assuming no transfers in previous 7 years and at ten year anniversary relevant property worth £300,000. Effective rate 30% of nil. Thus, IHT is nil.

Malcolm Finney