A makes a gift (a PET) to his girlfriend B in 2011. A and B marry in 2013, such that B is an exempt beneficiary. A then dies in 2014, so that the PET ‘fails’ and (normally) would be chargeable. Does the fact that B has become an exempt beneficiary before the PET becomes chargeable mean there is no IHT to pay, even though B was not an exempt beneficiary at the time of the gift?
I would have thought this would have an obvious answer, but perhaps it is too obvious to be mentioned in the usual texts!
Many thanks,
Alexander Learmonth
New Square Chambers
HMRC take the view that it is the relationship as at the date of the gift that is relevant.
The fact that the deceased subsequently married the donee, does not change the status of the gift from a PET to an exempt transfer.
Paul Saunders
I think the best you will get is the general principle that the chargeable transfer takes place at the time of the gift, it is just that the liability is imposed at the death when it becomes clear that it is not a PET. As the donee was not a spouse at the time, the gift is not exempt. The legislation could be clearer but I’m pretty confident that is the right answer and it fits the language better.
Similar issues arise if the spouse becomes domiciled/deemed domiciled between the gift and death.
Andrew Goodman
Osborne Clarke LLP
Is the ‘obvious’ answer that the status of the recipient is determined at the date of the gift and therefore the claim for exemption fails?
That was my first thought. My reading of sec 3A IHTA didn’t suggest otherwise.
Sec 18 is a little more encouraging:
- (1)A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which becomes comprised in the estate of the transferor’s spouse or civil partner or, so far as the value transferred is not so attributable, to the extent that that estate is increased.*
It doesn’t say that that ‘becomes comprised’ has to be ‘immediately’
And sec 18 (3):
(3)Subsection (1) above shall not apply in relation to property if the testamentary or other disposition by which it is given—
(a)takes effect on the termination after the transfer of value of any interest or period, or
(b)depends on a condition which is not satisfied within twelve months after the transfer;
but paragraph (a) above shall not have effect by reason only that the property is given to a spouse or civil partner only if he survives the other spouse or civil partner for a specified period.
Tim Gibbons
I agree with the other responses: the gift does not become exempt by virtue of the later marriage.
If it were the case that you must look at the relationship at the time of death, then a gift to a spouse whom the donor later divorces would retrospectively cease to be exempt. I do not believe that this is the case either.
Paul Davidoff
Moon Beever
If the donor reserves a benefit in the subject matter of the gift the subsequent marriage does not change the tax position. If the benefit is still enjoyed on the donor’s death, S.18 offers no exemption. If the benefit ends in the donor’s lifetime that is a deemed chargeable transfer if the donor doesn’t live another 7 years. It’a cruel world.
Ray Magill