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Hello,
Apologies if this has been asked before, however I am confused how to calculate the IHT payable immediately on Lifetime Transfers.
If the Donor pays the IHT then you gross up the value of the transfer by 20%.
As per your notes this is calculated by the value of the Gift x 20%.
However in the BBP revision books and ACCA website this is calculated by the value of the gift x 20/80.Can you please explain the difference in calculating the Gross value of the transfer and the IHT immediately chargeable.
Thank you
I think you need to look more carefully at the relevant section of the OT notes – chapter 24, section 6 CLT’s, page 132 as per extract below:
“The gross rate of IHT on transfers above the nil rate band is 20% and is applied if the tax is being paid by the donee (i.e. the trustees of the trust).
If the tax is instead to be paid by the donor the transfer is said to be a net transfer and the gift has to be “grossed up” as the IHT payable by the donor effectively becomes part of the gift.
The simple solution to this problem is to apply a net IHT rate of 25% to any part of the net gift in excess of the available nil rate band at that date. The gross amount of this transfer is then computed by adding the amount of IHT to the net transfer.”
I use 25% and BPP from your quote simply leave it in a fractional form of 20/80 (= 25%).
Then work through illustration 11 that follows on from the note.
Hope this helps!
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