IHT - Lifetime

Question 1

What is a Potentially Exempt Transfer (PET)?

Answer 1

A lifetime gift to an individual that is exempt unless the transferor dies within 7 years of the gift.

Question 2

What is a Lifetime Chargeable Transfer (LCT)?

Answer 2

A lifetime gift into trust, immediately chargeable to IHT at 20%, and reassessed if the transferor dies within 7 years.

Question 3

What rate is applied to failed PETs and reassessed LCTs?

Answer 3

The death rate of 40%, potentially reduced by taper relief.

Question 4

What are the steps for calculating IHT on PETs or LCTs?

Answer 4

A. Calculate cumulative total
B. Identify value transferred
C. Apply exemptions and reliefs
D. Apply NRB and calculate tax
E. Apply taper relief (post-death only)
F. Credit for lifetime tax paid (LCTs only)

Question 5

What is the cumulative total?

Answer 5

The total chargeable value of all chargeable transfers made in the 7 years before the relevant transfer.

Question 6

How far back can cumulative total reach when reassessing LCTs?

Question 7

How is the value of a lifetime transfer assessed?

Answer 7

By the loss in value to the transferor’s estate at the time of transfer

Question 8

Name five key exemptions and reliefs that reduce lifetime transfer values.

Answer 8

• Spouse exemption
• Charity exemption
• Annual exemption
• Marriage exemption
• Business/Agricultural Property Relief

Question 9

What is the annual exemption?

Answer 9

Up to £3,000 per year, plus any unused exemption from the previous year.

Question 10

What is the NRB applied to lifetime transfers?

Answer 10

£325,000, reduced by the cumulative total

PETs and reassessed LCTs use the NRB at death

LCTs (when made) use the NRB at time of gift

Question 11

What tax rate applies to an immediate LCT?

Answer 11

20%, if paid by the transferor.

Question 12

When does taper relief apply?

Answer 12

When the transferor dies 3–7 years after a PET or LCT.

Question 13

What is the effect of taper relief?

Answer 13

It reduces the amount of IHT due, but not the chargeable value.

Question 14

When is credit given for tax paid during life?

Answer 14

When an LCT is reassessed after death. Lifetime IHT is deducted from the IHT now due.

Question 15

Can a refund be claimed if less IHT is due at death?

Answer 15

No—refunds are not given if the death-rate tax is less than that already paid.