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Jimmy died on 14 February 2016. He had used up his nil rate band at the date of his death by making the following gifts during his lifetime: (1) On 2 August 2014 Jimmy made a cash gift to his grandson as a wedding gift when he got married. (2) On 9 September 2014 Jimmy gave 200 shares valued at £5 each in J Ltd, an unquoted investment company, to his daughter, Before the gift, Jimmy owned 5,100 shares valued at £30 each in J Ltd. After the gift Jimmy owned 4,900 shares valued at £20 each in J Ltd. (3) On 14 November 2014 Jimmy made a cash gift of £800,000 to a trust. Jimmy paid the inheritance tax arising from this gift. Additional inheritance tax was payable on this transfer as a result of Jimmy’s death.
Question
What was the amount of the inheritance tax paid by Jimmy as a result of his gift made on 14 November 2014?
Solution given AS PER BPP
£118,750 £ Net transfer of value (Jimmy pays IHT) 800,000 IHT £325,000 × 0% = Nil £475,000 × 20/80 = 118,750 £800,000 118,750 137
My concern:- How they ignore the 52000 (Transfer of shares 55000-3000 (Annual Exemption) while calculating the Exemption limit.. As per my understanding only 273000 is available as exemption limit , but it is taken as 325000
Kindly confirm
I think that this is a matter of looking VERY carefully at the precise wording of the question – the amount of tax paid by Jimmy would be the LIFETIME tax payable on the CLT. In this respect the only relevance of PET (the share transfer) is that it would utilise the available AE’s but would NOT be relevant in computing the amount of nil rate band available to be deducted from the CLT!
The PET will only be taken into account when dealing with the IHT payable on lifetime transfers as a result of the DEATH of the taxpayer.
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