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Hi Sir,
Thanks for your excellent lectures, I am a quite confused on example 2 in Chapter 24.
Regarding the IHT paid on the CLT from June 2009, of £2000, would this not then be deductible, against the final IHT due or the lifetime transfers chargeable on death? as surely this was before the 7 years so IHT would no longer be due on this as this was essentially an overpayment?
2) In your lecture you deducted the CLT from the gross amount on the lifetime transfers chargeable on death which makes sense, bringing down gross transfers to 290000 this was still taxed at 40% less Taper relief yet was deducted from the calculation of the nil rate band even though it had been taxed. Is this correct such that then this tax payer would only enjoy 35000 of the nil rate band?
So on the calculation for IHT on the estate £186000 was due this is in addition to the £46400 due on lifetime transfers chargeable on death?
Hope these questions make sense,
Thanks,
Nick
Hi Nick
Sorry to keep you waiting but I will now attempt to deal with your queries:
1) The Lifetime Transfers Chargeable in Lifetime is of course a separate computation to the Lifetime Transfers Chargeable on Death and in lifetime the correct amount of tax of £2,000 was paid.
If Dee had died within 7 years of the CLT then it would also have been chargeable on death and any additional tax due on the CLT would need to be computed which would require the lifetime tax of £2,000 to be deducted from the tax arising on death but could NEVER result in a repayment.
In this example however as the answer states, Dee does not die within 7 years of the CLT and it does not therefore suffer any additional tax on death and as stated the lifetime tax will never be repaid – the correct amount of IHT was paid in lifetime but no additional tax arises on death.2) As shown in the answer – yes there are 2 separate liabilities arising on death – firstly the Lifetime Transfers Chargeable on Death – in this example it is the PET made in the 7 years before death which suffers an increased IHT liability because it was made within 7 years of the earlier CLT as discussed above – this liability is payable by the recipient of the PET.
We then compute the IHT payable on the chargeable estate where most of the nil rate band is deemed used by the PET irrespective of the fact that the PET did not get any benefit from the nil rate band due to that CLT – the point here was not to have made the PET within 7 years of the CLT!! The IHT on the estate is payable by the trustees but the money comes out of the estate so there is less to be distributed to the beneficiaries of the estate.
Read carefully through the notes in the answerHi Sir,
Thank you very much for your explanations and having reviewed this, this is making much more sense now. I was getting mixed up before and assuming that the tax on transfers chargeable in lifetime was simply an adjustment to when it was paid not a completely separate issue.
Just out of interest and most likely beyond the scope of TX-UK, if the recipient/donee of the PET (made within 7 years of the CLT and within 7 years of death), was a child/minor under 18 would they still be liable for the IHT due?
Thanks for your help
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