Timeline:
• 08/10/2009: CT of £250,000 (no IHT paid at the time)
• 24/09/2016: PET of £400,000
• 01/05/2017: CT of £175,000 (no IHT paid at the time)
• 01/10/2021: Date of death
Ignoring annual exemptions:
• 24/09/2016 PET becomes chargeable, cumulates with 08/10/2009 CT (as within 7 years) to leave only £75,000 of GNRB available at that point, IHT payable against failed PET (after 5 full years taper relief @60%): £52,000.
• 01/05/2017 CT now forms top slice of 7-year cumulative total of £575,000 (cumulates with failed PET made less than 7 years prior), so no GNRB available (because cumulative total excluding this transfer is greater than £325,000), IHT payable on this transfer now (after 4 full years taper relief @40%): £42,000.
• At date of death, no GNRB available to estate as 7-year cumulative total at that point is greater than £325,000.
Is the above correct? One thought in particular is that it would appear that the amount of GNRB available to the transfers made within 7-years of death has effectively been reduced to just £75,000 by virtue of the CT back in 08/10/2009.
In addition, if the 01/05/2017 transfer was into trust and that trust has now been wound-up, would the IHT of £42,000 be paid by the appointees?
Paul Storrie
Storrie and Company
I agree the computations. The effect of the 14 year rule is that although only transfers within seven years of death fall chargeable, the extent of any such charge may be affected by transfers effected within 14 years of death.
The liability on a CLT is primarily that of the donor but any additional IHT on the CLT due to death within seven years is the liability of the donee (trustees in this case). Presumably the trustees should have provided for their possible exposure; their exposure doesn’t fall away due to winding up the trust. If the IHT remains unpaid after 12 months post death the PRs may be held liable.
Malcolm Finney
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Thanks Malcolm, much appreciated.
Paul Storrie
Storrie and Company
The Testator and his pre-deceased spouse were trustees of the trust that wound up and thus it would appear that the PRs will indeed be liable for the £42k above. However, i don’t believe that this sum of tax will be deductible as a liability within the IHT computation for the estate or would it?
Paul Storrie
Storrie and Company
No I don’t believe it would be. The additional IHT due on the 1.5.17 CLT is not a liability of the death estate.
Malcolm Finney
I’m not sure whether I agree with your figures on the 24/09/16 failed PET. If you assume a nil rate band of £325K as the 8/10/09 is within 7 years of the failed PET they are added together.
400K + £250K = £650K - £325K (nil rate band) = £325K. Taper relief of 5 years available.
Kim Jarvis
I’m not sure I understand, because £325,000 x 40% = £130,000, taper relief reduces this by £78,000 (60%) to leave net IHT payable of £52,000 which is the figure i gave.
Paul Storrie
Storrie and Company
It was because you stated that £75K NRB was left, which it wasn’t. Sorry I didn’t check the IHT figure.