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Dear tutor
I’m getting myself into a right pick with regards to the nil rate band and inheritance tax.
Could you confirm the below for me to help straighten it out in my head please?Potentially exempt transfers – can you make as many as you like and won’t affect NRB until death and if they become chargeable (made within the 7 years)?
If so and there is a PET say 10 March 16 of £500000 and then on 20 March 16 there was a CLT of £200000 to a trust would the full NRB be available to use against the trust CLT?
Then hypothetically lets say said person died 1 November 2016 – do they have a full NRB to use against the PET or will it be reduced because of the CLT?
Also not inheritance tax related but in the exam if we are told ‘Taxable income’ would that be before or after deduction of the personal allowance? This is another thing I’m getting muddled in my head!
Thanks for the help!
Not sure if you have watched the IHT lectures and worked through the notes, which is my main recommendation if you have not already done so.
In lifetime, PET’s as you say do not use the NRB but would be deemed to use any annual exemptions if made prior to a CLT – such as in your example above, so the CLT would benefit from the full NRB assuming no other CLT’s had been made in the previous 7 years.
If the taxpayer then died within 7 years of the PET then it would become chargeable and take the use of the available NRB at the date of death, this would then push the CLT out of the NRB causing it to suffer 40% IHT.
On your point about income tax a quick look at the proforma computation in the notes will clearly show you that taxable income is AFTER deducting the PA.
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