PET or CLT?

[maths]

1. You appeared to have ignored my earlier postings where I indicate that in practice it may well be that no IHT arises whether CLT or PET in view of a lack of prior gifts made by gparent ?

2. Are you a tax advisor; if not why the in-depth interest ?

[Aldous]

Maths

My apologies if I've offended you. That certainly wasn't my intention.

In relation to your two previous queries:

1. I can understand why you'd think I'd ignored your posts about the NRB etc. but I can also assure you that wasn't the case. The problem in this instance is that (a) I don't know what gifts said gparent made (b) if they did (very likely), I don't know the dates / order of gifts / amounts and am not likely to anytime soon and (c) if the payments are CLT's, then and I'm not liable and part of my goal (though not all - ideally I'd like to eradicate the liability in its entirety) is accomplished.

2. I am not a tax advisor. If I was, I would not be posting on public bb's and airing my dirty laundry in public. The in-depth interest is a function of the fact that (like most people) I want to minimise my IHT liability. Frankly speaking, I'm not earning that much money at the moment and I figure that if I spend a bit of time guarding against a tax liability, that's time well spent. One would hope that tax advisors don't get their advice from internet bb's. I'd also highlight the fact that if I was a tax advisor, you would reasonably expect me to know about (a), (b) and (c) above. I don't. Anyway, I'm sorry if I've offended you.

[maths]

As you suggested, liability is determined by reference to section 199 of the IHTA 1984. On the present facts, section 199(1)(a) applies and the "transferor" is the person liable for the tax on the value transferred by a chargeable transfer made by a disposition of transferor. Section 199(2)(b) clarifies that the transferor is liable for "the tax on the value transferred by any other chargeable transfer made within seven years of the transferor's death". The transferor is the estate in this context, hence s. 199(2) - "with the subsititution for the reference to the transferor of a refernece to his personal representatives".

No.

The current issue under discussion relates to who is liable for any "additional IHT" leviable on the grounds that a CLT has been made within 7 years of death (s7). S199(2) provides part of the answer; the "transferor" is not the estate as you suggest. The transferor is the gparent.

What s199(2) does is to cause the liability re the additional IHT charge to fall on the executors of the estate albeit subject to s204(8) which in simple terms provides that the primary liability in fact falls on the person the value of whose estate is increased by the transfer.

However, in this case non-one's estate is increased by the transfer (your own estate is exactly the same both before and after the gparent fee payment).

Two issues remain:

1. The entire argument rests on section 3A (Potentially exempt transfers) and it's inter-relationship with section 5 (Meaning of estate), i.e. could it be argued that my entitlement to educational services amounted to property to which I was beneficially entitled to (s.5(1)) and that, as a result of which, comprised part of my estate. I think this is a dubious argument but I'm attempting to consider all possibilities.

2. If the tax remains unpaid after the due date, then the transferee is liable but this seems very very unlikely (s. 204).

1. No. s5 is irrelevant; s3A(2) is not satisfied.

2. No. If IHT fails to be paid by the donee it is then the liability of the executors.

[Aldous]

Maths

Thanks for the response. Sorry for getting so many things wrong!

When you say "additional IHT", I presume that means anything above the NRB?

[maths]

When a chargeable lifetime transfer (CLT) is made a 20% charge applies (assuming nil rate band exhausted).

If death occurs within 7 years of making CLT then a further (or "additional") charge arises on that same CLT but this time at 40%. Any IHT paid on the CLT (at 20%) is offsettable against the 40% charge (and depending upon how long after the gift the donor survives (within the 7 years) taper relief may also apply.

Other gifts made within the 7 years before the CLT affect the availability of the nil rate band.

In working out the additional liability it is in fact necessary to check out gifts made within 14 (not 7) years of death to ascertain the nil rate band availability.

You're understanding (as a layman if i may use that term) is very good but to attempt from cold to try and read the legislation with all its interactions is impossible, as it is is for those involved in tax and hence websites such as this!!!

[Aldous]

Maths

Thanks for your last post.

Rate of IHT if nil rate band all used up - 40%?

Right - so, assuming the fees were CLT's made by the donor in the last 7 years, they are liable for IHT at 40% if the NRB is all used up. So £10k's worth of fees would mean £4000 worth of IHT to pay. There's no need to gross up anything because the donor didn't pay IHT at the time of the transfer.

Going back 14 years?

The issue about going back up to 14 years is a little confusing. As far as I understand it, the general rule is that you don't have to pay tax on PET's/CLT's that are over 7 years old. However what your last post seemed to suggest is that CLT's or PET's up to 7 years before the earliest PET/CLT in the last 7 years can use up the NRB?

[Aldous]

In other words, when you go beyond the 7 year period up to 14 years, what actually counts to use up the nrb?

[pqtaxation]

In other words, when you go beyond the 7 year period up to 14 years, what actually counts to use up the nrb?

A PET within 7 years before a CLT that was within 7 years of death utilises the NRB available to the CLT and hence in turn to the death estate.

More generally, your objective of trying to understand whether you, as an individual, may have a liability to IHT as result of the death of your grandparent(s) is understandable. You’ve done well to read IHTA 1984 and to seek to understand it. There is intellectual satisfaction to be had from acquiring the knowledge to be able to argue your position.

However your individual situation is just one piece in the” jigsaw” of your gparent’s specific financial circumstances – value and composition of death estates; terms of their wills; structure, purpose and value of lifetime gifts including yours etc - and it is that total “jigsaw” that will decide if there is any liability to IHT on anyone’s account, nevermind yours.

Unless and until you can give detailed information about those other pieces comprising the aggregated jigsaw and the reasons given, if any, by the personal representative(s)/HMRC as to why they believe you have any liability to IHT, I doubt it is possible to add more helpful comments than have been previously posted by Maths and, to a much lesser extent, myself.

[Aldous]

PQTaxation and Maths

Thanks for replying and thank you for entertaining my slightly odd questions.

You're almost certainly right - I should wait before I know the bigger picture - so I'll hold fire for now and do a bit more research later and maybe come back to darken this bill board once more