I note that s.274 provides for the value of an asset “forming part of [the] estate” on death to be rebased to the market value as at the date of death.
I also note that the market value of a failed PET, as at the date of the transfer to the donee, must be included within the calculation of the net estate (and must “use up” the first part of the Nil Rate Band).
My question is - would the failed PET asset (lets say, a House) be deemed as “forming part of the estate” for CGT purposes? On the one hand, it was incorporated in the IHT calculation and substantially increases the IHT liability, but on the other hand, it was not legally owned by the Deceased and so, under any normal interpretation of “forming part of that estate”, wouldn’t be included.
If not, it seems to me that there is a double taxation issue; (1) IHT is substantially increased because the Nil Rate Band is used up, without the ability to enjoy taper relief; and (2) the Donee of the failed PET is liable to pay CGT on any subsequent disposition - and must use the base value as at the date of the gift and cannot enjoy the market value uplift under s.274.
Is my understanding correct? Are there any workarounds to this?