Inheritance Tax- PET vs CLT

Yes, that’s right.

@candy~ said:
Just to clarify… any transfer to another individual is a potentially exempt transfer with the exception of transfers to a trust?

@chrysanlythe,

not sure about all the cases when the donor is supposed to pay IHT.
However, what is important to know for F6 is that donor is supposed to pay it on CLT, chargeable lifetime transfers , like transfers to trustees.

And here he may either agree that donee pays it , or he will pay it himself.
In this case, don’t forget to gross up the value of transfer by multiplying to by 0.25 (20/80).

Yes and also no tax is paid on PETs during the lifetime of the donor right? Only the death tax on PET’s and CLT’s within 7 years of the donors death.

Regarding the Death tax on the Estate:
Do we deduct (Gross CLTs + death tax), (PET + death tax) within the 7 year window from the Nil rate band (325,000) or just deduct (Gross CLTs), (PETs)?

Just to note…. Transfers to “any” individual is a PET = Yes apart from an inter-spouse transfer which is always exempt

Hi Nadishaf,

The questions that I have seen are usually structured as follows

1) Individual makes lifetime transfers (i.e. when he was alive)
2) Individual dies (within the next couple of years)

therefore you need to tackle the question in this order. It is imperative to do it in this order;

1) calculate lifetime tax and c/f mounts of the lifetime gifts.
2) Calculate the additional lifetime tax on the assets gifted now that he has died
3) calculate the tax on his death estate

In each of the above steps you need to consider the nil rate band. In the first step you need to consider any exemptions.

For example If ABC transfers an asset to his daughter. This is classed as a PET. For step 1 there is no tax liability. There will be a tax liability if he dies within 7 years – calculate this in step 2. If his lifetime gift was a CLT then there will be tax in step 1 and you would need to calculate tax in step 2 as well. (Step 2 may lead to no additional tax liability but you would need to show this in your workings)
The death estate is the easiest part.

If you learn this generic structure and understand how the nil rate bands and taper relief work then the question isn’t too difficult. There’s not too much on tax planning but if you learn that as well it will help you achieve good marks.