Hi all
I am dealing with an estate where the deceased gifted £200k to his stepfather to purchase a property. This is a failed PET as he died within 7 years of the gift and will be chargeable to IHT. The stepfather died a few months before the deceased and in his Will leaves a specific gift of that property to the deceased. I therefore have to include this in IHT415 as it is due to the deceased’s estate. The stepfather’s estate is also subject to IHT. Is this a situation where succession relief will apply? Seems a double whammy of tax, otherwise. Any advice would be greatly appreciated and thanks in advance for any help you can give!
Have a look at para 4 of The Inheritance Tax (Double Charges Relief) Regulations 1987. I believe it probably applies to avoid double taxation.
Hi Andrew, does it still apply if the stepfather’s estate is not subject to IHT?
Those regulations apply to situations where an individual makes a failed PET but the subject of the gift is also within their estate at their death (e.g. because it was gifted back or some other form of GROB).
They operate irrespective of where the asset has been in the meantime, or whether the recipient has died.
You will also need to look at quick succession relief under s.141 IHTA in addition to the regulations. I have never had to look at how they work together but I suspect they should ensure that your estate only has to pay tax once.
1 Like
- Para 4
The son is eligible for relief if and to the extent that his death estate comprises or represents assets gifted by the failed PET and returned to him by the donee via a lifetime gift or death transfer. IHTM14701 is a neat outline summary of the Regs. The mechanism of relief is to take only the one charge yielding the higher tax amount.
The position of the step father is not relevant. He suffers no double charge, just the one on his own death estate. Similarly if he had had returned the assets by way of lifetime gift within 7 years the gift would have been charged and so would his later death estate but of course as reduced by the gifted assets so not a double charge on the same value.
The relief says nothing about liability for the tax charged on the PET and the death estate. Presumably the consequence of nullifying the tax on the lower yielding transfer relieves of liability the person otherwise liable. The transferee of a failed PET is liable for any tax :s199(1)(b).Presumably the operation of Reg 4 could shift liability to the PRs of the estate or vice versa.
(One puzzle I have never had to solve is whether the transferee of a PET can deduct the tax liability in his death estate if it later fails by virtue of the transferor’s subsequent death. At the time of his own death it is not even a contingent liability: s3A(5). The liability is only ever secondary under s204(6) but if it crystallises and is enforced does it allow reopening and repayment and does the 4 year limit in s241 apply? It is not an error of fact or a reconsideration of value or an occasion for a corrective account or remission of tax. IHTM seems silent on the point).
2 QSR
There is a different type of double exposure where two separate taxpayers are charged on essentially the same asset value within a 5 year period—Quick Succession Relief—see ss141 and 141A and IHTM22041-81. QSR is a tax credit mechanism. Here the stepfather dies first and tax on the stepson’s later death can be reduced by a percentage of the tax payable on the first death on the value transferred or part which is taxed in each estate. No tax on the first death so no credit on the second in the OP case.
Originally ss148 and 149 contained exemption or relief for mutual transfers made within very long intervals, 10 and 6 years respectively. This was regarded as much too fair to taxpayers and much too inconvenient for a civil servant to keep track of and so was repealed by FA 1986.
Jack Harper
Thanks, Jack. I believe para 4 applies and have reduced the value of the specific gift on IHT415 to nil