I have been looking at the IHT position where an individual makes a settlement of qualifying property and the relief is later withdrawn on the transferor’s death.
Take a scenario where an individual settles shares into a trust. The only asset settled being shares in an unquoted trading company with loss to donor established to be £1m. Assuming all conditions are met, the transfer will qualify for BPR with no IHT due on the initial transfer.
The trustees sell the shares two years later, and the transferor dies six months following the sale.
BPR will be withdrawn by virtue of s113A(2) and the transfer will be assessed on death.
The query arises as to the NRB available for the remainder of the death estate (assume no other lifetime transfers made in the seven years prior to death/settlement).
s113A(2) provides that the “additional tax chargeable” is calculated as if the “value transferred had not so been reduced”. Note the distinction between the CLT and PET (with the latter s113A(1) withdraws relief for the purposes of the “value transferred”).
It seems to follow that the “value transferred” for cumulation purposes remains reduced by virtue of s104(1)(a), with the full nil rate band remaining intact. HMRC confirm their interpretation in IHTM14579.
There are various examples online that illustrate this where the initial transfer is below the nil rate band, with no “additional tax chargeable” on death.
Has anyone come across this in practice or seen an example to confirm the full NRB remains available for the death estate where there is additional tax to pay on the CLT following with withdrawal of BPR?