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ok, i am going through the practice and revision kit for F6 (tax) and i want to ask a quesiton about Question 29 – Jimmy.
Can someone explain why Jimmy has the full nil rate band of £325,000 available to him for his cash gift of £800,000 to a trust?
The part before it says that he made a cash gift to his grandson of £50,000 for his wedding. now, he gets to deduct his annual exemption from the 2 prior years (£6,000) and the wedding allowance (£2500) – so in fact his PET is only £41,500 (50,000-6,000-2,500).
Now, that is all swallowed up by his nil rate band – so there is nothing to pay as his nil rate is £325,000 and the PET is only £41,500.when it comes to the part about the £800,000 gift to a trust (which he pays the IHT) why does he get to use £325,000 at nil rate and then £475,000 x 20/80 ? i thought that as there was a gift within the last 7 years (the £41,500 from above) then this would get taken away from his nil rate band.
i worked it out as £325,000 less £41,500 = new nil rate band of £283,500, and then the remainder (£516,500) at 20/80.
anyone?
Hi Danny your question has only just caught up with me as I have been travelling since yesterday to do a course in SE Asia so my apologies if this is getting to you too late.
I think you are confusing two separate computations, the first is just for CLT’s and computes the IHT payable in lifetime, hence why the PET is disregarded (other than for use of Annual Exemptions) and the full nil rate band available at that date is applied and the lifetime IHT rate is applied. When doing the second computation for IHT payable on death of taxpayer then the PET if it pre-dates the CLT will use the nil rate band first.
Hope you get this in time and it helps!
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