Re: [The Trusts Discussion Forum] Email issue -- Post too short

I am trying to submit a new posting but this has been rejected twice How can I submit this
Mochael Jepson

Hi Michael,

The minimum allowed post length is 20 characters, and the minimum allowed topic title length is 15 characters. Your post should be automatically approved if your post meets those requirements, please let us know if that doesn’t resolve the issue.

Kind regards,

This was my submission which was rejected lt appears to have met the requirements but was rejected

Gift of property subject to reservation and nil rate band

Clients wish to part gift and part sell their home to their son but are not moving out until they find a flat to purchase Because, until they vacated, the gift would therefore be subject to a reservation, they had decided to defer making the gift until they were ready to move. However, given the reduced SDLT on the consideration element up to 31st March they are considering the sale and gift now , recognising there would be a GWR until they move out, so that the 7 year period will not start to run until then.
It is likely therefore that the potential double IHT charge would apply if the gift became chargeable, given the PET and what would be a deemed transfer shortly thereafter. Double tax relief would apply, but it is not clear whether, assuming values were the same, there is any difference in the amount chargeable to IHT ie would the deemed transfer also carry the nil rate band relief for the donors or would the prior ( but still technically ‘chargeable’) PET absorb the NRBs, given that it is taken into account, and not discounted as such, although it is deemed to be reduced to nil for IHT purposes under the double tax relief
Michael Jepson
M J Consultants

HMRC’s views are set out in IHTM 04064,04072, and 14711. I don’t see anything worth seriously challenging. The anomaly would seem to be that the first PET would attract available annual exemptions reducing the value transferred whereas the second deemed PET does not and so double charge relief is not a complete wash

Jack Harper

Yes I agree that the exemptions do not apply e.g. Annual exemption although Agricultural and Business relief are specifically still available even though it is only a deemed transfer of value However the nil rate band is not an exemption. It is a nil rate charge on the first £325000 of the chargeable estate Indeed the Manual appears to accept this in the examples eg14713 which, where the illustration ignores the PET, the death charge is calculated after applying the NRB so that appears not to have been negated by the ignored PET
Michael Jepson

Neither PET actual or deemed is actually charged unless death occurs within the 7 year period. If both are charged then the NRB will be applied to the first actual PET and only the balance if any to the second.

IHTM14692 says:

"When a double charge arises:

  • retain the charge on the transfer which produces the higher overall amount of Inheritance Tax, and
  • reduce the other transfer to nil."
    Taper relief may be available after 3 years (though it is the tax that tapers not the value)

The Manual could be a lot clearer. The Regulations themselves are tortuous but the effect of Reg 5 (3) is that you do 2 calculations. First charge the actual PET, then the second without cumulating the first. So if the values are the same the amount of NRB attaching to each will be the same. The question assumes the values are not different but the Regs have to cater for that possibility hence the credit mechanism. Unfortunately the Schedule does not provide an example of this particular sequence of events within Reg 5.

Jack Harper

SI1987/1130 Reg 5 deals with potential double IHT charges where IHT is potentially charged on a failed PET and on death (due to GWR) OR as in the present case, the potential double IHT charge arises where there is a failed PET and a deemed chargeable PET on release of the reservation.

In the present case the Regs apply as, in particular, conditions Reg 5(2)(f)(ii) and 5(2)(g)(ii) both are satisfied.

Two separate IHT calculations are carried out; the first calculation of IHT due assumes the deemed PET (ie on cessation of the reservation) is ignored and the second calculation assumes the initial PET is ignored.

The calculation which produces the higher amount of IHT is the relevant calculation.

The NRB in each calculation is applied in the normal manner.

Just for info’ the reference to HMRC’s manual of para 14713 involves slightly different calculations to the current scenario; in 14713 the calculations comparison involved property being part of the estate on death under the GWR provisions whereas here this is not the case.

Malcolm Finney

Missed a bit: Other things being equal the deemed PET will produce the greater IHT amount.

Malcolm Finney

I take it that Malcolm seems to confirm that both calculations in this example include the full NRB and this follows from reg 5(5) which reduces the value of the ignored item to nil
AsI read it however, Jack seems to consider that only the balance of the NRB if any is applied to the second deemed PET Reading the Regulation however I cannot see anywhere where it does not permit application of the full NRB to the deemed transfer, simply because it had already reduced the comparative calculation on the earlier PET
I agree that the deemed PET calculation will however result in more tax even if the value of the property is the same because the annual exemption cannot be applied to a deemed PET
Mochael Jepson

Taking simple example (ignore annual exemption for ease)

Henry makes gift actual PET worth £50,000 in which reservation subsists.
Reservation later released (deemed PET) when value (say) stays the same ie £50,000.
Henry dies within 3 to 4 years of deemed PET and 5 to 6 years of actual PET.
CLTs within 7 years of £300,000.

CALCULATION 1 (failed actual PET)
Transfer 50,000
NRB 325,000 - 300,000 = 25,000

Net chargeable estate = 25,000 @ 40% = 10,000
Taper relief 20% = 2,000


CALCULATION 2 (failed deemed PET)
transfer 50,000
NRB 325,000 - 300,000 = 25,000

Net chargeable estate = 25,000 @ 40% = 10,000
Taper relief 60% = 6,000


Agreed and noted, assuming CLTs were prior to PET but I think the 2 Calculations should be reversed re taper relief percentages

My comment was directed at the strict position before the relief is claimed so that it can be seen why relief makes a difference.