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In this question there are two PETs first one cash gift to trust in 2006 – 146K and another cash gift to children in 2012 – 253K. Donor dies in 2014.
Since the first gift is more than 7 years it is exempt.
The second one 253 less two year annual exemption 6,000 = 247K. Allocate NIL band and balance in Nil band = 78K.
Estate works out to 1624K less 78K = 1546K x 40% = 618,400 is the correct answer. This is fine.However the working first allocated the Nil band to the 7 year old exempt gift that is 146K – 6K = 140. Therefore Nil band is allocate first to this gift = 140 and balance is 325 -140 = 185.
Therefore the working show that for the second cash gift = 253K, availabe nil band is 185 and hence 253- 6K two year annual exemption less – 185K nil bank = 62K. Therefore IHT due =62K x 40% = 24,800.
My doubt is 1) Since the first gift is more than 7 years old, why should nil band be allocated to it. It is now totally exempt.
2) The second gift can avail the full nil band and it will be total exempt from IHT
3) The IHT on estate correctly allocates nil band as per above calculation that is 325K – 247K = 78K.
I think from what you have said the official answer states then the first transfer in 2006 must have been a CLT and NOT a PET. If this is so then the answer is correct, if the 2006 transfer was in fact a PET then being more than 7 years before death not only is it not chargeable on death it will also not impact on any of those transfers which do fall within the 7 years before death.
For this type of example see Chapter 23 section 9, “The 7 year cumulation period” and the example 2 that follows.Yes, the first transfer was a CLT. I was under wrong impression that any transfer once the period of 7 years has elapsed is exempt and can be ignored for all purposes.
But from the ACCA answer to this question, it turns out is that a CLT even after 7 years will have to be considered for the calculation of NRB (nil rate band), for the purpose of calculation of IHT on the PET which has become taxable on death, since 7 years has not elapsed.
However for the calculation of IHT on the estate, the CLT is ignored and the NRB considers only the PET.
I found one ACCA official article which also confirms (I found it after I raised the doubt to you), which reads as below.
Quote” Death tax on PETs – If a donor dies within seven years of making the gift, IHT is due on any amount above the nil rate band in force at the date of death. However, the nil rate band is reduced by any CLTs made by the donor in the seven years before the PET.Accordingly, it is necessary not only to look back seven years from death, but also seven years from the date of the PET, in order to identify the balance of the nil rate band available”
https://www.accaglobal.com/vn/en/technical-activities/technical-resources-search/2013/october/gifts-inheritance-tax.htmlThanks again. I find f6 much more tougher than any other paper and am discovering new rules in every exam paper!!
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