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Kindly clarify my doubt about solution given in BPP text:-
For calculating the Nil rate band after the initial transfer of Dec 2002, why the Annual exempt limit for two year is being excluded. If we consider that the CLT would have been 201,000 (207000-3000-3000) and the Available Nil rate band after the transfer would have been 111,000 (312,000-201,000)
Which is wrong my understanding or the solution given by BPP ?
Question
Trevor makes a gross chargeable transfer of value of £207,000 in December 2002.
He then makes a gift to a trust of shares worth £206,000 on 15 November 2008
. The trustees pay the lifetime tax due. The nil rate band in 2008/09 was £312,000.Trevor dies in September 2015. The shares held by the trustees were then worth £500,000.
Compute: (a) The lifetime tax payable by the trustees on the lifetime transfer in November 2008 (b) The death tax (if any) payable on the lifetime transfer in November 2008
Solution :-
Step 1 Lifetime transfer of value of £207,000 in seven years before 15 November 2008 (transfers after 15 November 2001). Nil rate band of £(312,000 – 207,000) = £105,000 available.
Step 2 Value of CLT is £206,000 less £3,000 (AE 2008/09) and £3,000 (AE 2007/08) = £200,000.
Step 3 IHT £ £105,000 × 0% 0 £ 95,000 × 20% 19,000 £200,000 19,000
Read the descriptions of the transfers given in the question – your problem is simply with the wording and the meaning of the terms used!.
For the November 2008 transfer the question states the value of the shares gifted into trust, therefore to compute the chargeable transfer the answer correctly deducts the 2 x AE available and as the trustees pay the IHT that figure (£200,000) is also the “gross chargeable transfer”.
The gift in 2002 is stated to be the “gross chargeable transfer” which is therefore after the AE’s have been deducted and any IHT on the transfer has been computed.
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