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Dear sir,
Apologize for coming here too often. Could you please look into this.Tom Tirith, aged 76, made a cash gift of £200,000 to his daughter on 20 December 2010. He is now going to make a cash gift of £450,000 to a trust on 20 February 2012.
Required: (i) Calculate the lifetime inheritance tax that will be payable in respect of Tom Tirith’s gift of £450,000 to a trust if: (1) the trust pays the tax arising from the gift. The answer given is as belowValue transferred 450,000
Annual exemption 2011–12 (3,000)
Gross chargeable transfer 447,000IHT liability 325,000 at nil%
122,000 at 20% 24,400My doubt is why first gift of 200K given to his daughter is not reduced from the Nil Band, for calculating 20% tax payable on CLT?
The balance of nil band is 325 – 200 = 125 and so 20% tax is payable on 447 -125 = 322K @ 20% = 64,400.Have you worked through the IHT chapter and watched the lectures as you should not then be asking the question?
The first gift is a PET and only becomes chargeable when the taxpayer dies within 7 years of the gift
Thus when taxing CLT’s in lifetime when they are made only CLT’s made within the previous 7 years will utilise the nil rate band, PET’s are ignored in this computation.Thanks a million for the explanation. Got the point.
When CLT is made for 20% IHT computation all PETs have to ignored.
So, if any CLT was already made, it would have availed NIL band, and in that case the second CLT will have to first reduce the already availed NIL band and pay tax accordingly.
However when death happens PETs have to be reviewed for 7 year rules and will become subject to tax, subject to taper relief.
I had done all OT Notes examples and went through them again. Now I am doing all exam questions with the help of a revision kit. It seems in all those cases there was death, and calculations were consequent to death.
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