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Hi Tax tutor again! A question regarding the answer to the above practice question. When computing the lifetime transfers chargeable when made the nil rate band in force at 05/06 is 275,000 which is fully used with the CLT on 23.10.05 however when calculating the subsequent CLT made on 26/08/2012 there is no nil rate band available it is deemed as used. Even though the nil rate band in 12/13 is now 325,000 does this not mean there is a balance remaining of the difference between the two ie 50,000? Likewise the same goes for the computation of the IHT on lifetime chargeable on death, there is a PET made on 17/09/2009 when the nil rate band is 325,000 however no nil rate band is available according to the answer due to the CLT mentioned above on 23.10.15. To clarify if the nil rate band has been fully utilised previously does this mean that regardless if the nil rate band amount has changed then no further nil rate band is available? Somewhere along the way I have not understood something. Thank you in advance. Angela
When computing the IHT on the second CLT in lifetime or on the PET on death we need to know what if any nil rate band remains to apply against these transfers. What is important is what relevant transfers have occurred within the 7 years of that transfer and whether that leaves the current transfer with any such nil rate band available. Whether all of the nil rate band limit that exists at that time has effectively been used is irrelevant!
Remember that the taxpayer had a choice about how much to transfer into trust and the dates chosen to make those transfers, so that when the first CLT was made in October 2005 and the nil rate band was £275,000 the taxpayer in the example chose to make a chargeable transfer of £350,000 that immediately resulted in £75,000 being taxed at 25% and gave a gross CLT of £368,750. The consequence was that if as happened the taxpayer chose within the next 7 years to make another CLT then it would only enjoy the use of any nil rate band if at that later date the nil rate band had gone above that gross total of £368,750!
So remember when taxing a CLT or a PET we simply need to know what relevant transfers have occurred within the previous 7 years and what nil rate band limit now exists, either at the date of the CLT if computing tax payable in lifetime, or at the date of death if computing tax payable on deathAgain understood and feel quite silly now for posting the original question! Thank you!
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