Home For AAT student members AQ 2016 Professional Diploma in Accounting Personal Tax
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚


Inheritance Tax

MCje95MCje95 Registered Posts: 3
When working out IHT on CLT's upon death (not lifetime charges) do you reduce the NRB of gross chargeable transfers from 7 days from date of gift or date of death? As my tutor is telling me from date of gift and my study text tells me from date of death? PLEASEEE HELP!!

Comments

  • PeterCPeterC Registered, Tutor Posts: 152
    I presume you mean 7 years. For tax at death, use 7 years prior to death. For the lifetime tax, use 7 years prior to gift. Maybe this explains the confusion.
  • MCje95MCje95 Registered Posts: 3
    I think I ve got it, Upon death IHT is charged for the 7 years prior to the death on gross chargeable transfers however the NRB is decreased for the gross chargeable transfers prior to the gift, so the NRB can be deducted for transfers upto 14 years prior the death. Is that correct? IHT just seems one of the topics that are not explained enough, probably as it just got added
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    It's good to hear AAT have finally added IHT.

    I have no knowledge of IHT because it was not included when I was an AAT student.

    From my understanding, that I have had to read on my own, the nil rate band (NRB) is generally only relevant for transfers in the 7 years before death. If the transfer was older than 7 years the transfer would be IHT free: https://www.gov.uk/inheritance-tax/gifts

    The link above shows 0% IHT for transfers older than 7+ years.

    These type of transfers are called potentially exempt transfers (PET's) because the are potentially exempt from IHT at the time of the transfer assuming the donor lives for more than 7 years after the transfer.

    Transfers between spouses/civil partners are exempt from IHT.

    I believe the only transfers not potentially exempt are chargeable lifetime transfers (i.e. transfers into a trust) and are immediately taxable at 20% to the extent that all CLT's in the last 7 years exceed the NRB.

    I believe the 14 year rules only kicks in when the donor dies and if there was a CLT within 7 years of a 'failed' PET. So a failed PET could be within 0 - 7 years of death and then another 7 years prior to the failed PET would need to be looked at. So it the failed PET as made at the end of year 7 before the donor's death then we would need to see if there were any CLT's during years 8 - 14 (going backwards from the point of death).

    Any CLT's made within years 8 - 14 before death would have an affect on the size of the NRB. If the CLT in years 8 - 14 is greater than the NRB IHT will be due otherwise if the CLT is smaller than the NRB the CLT just reduces the size of the NRB.

    I would hate to be rich. It sounds like such a hassle.
    MarieNoelleMCje95
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    MCje95 said:

    When working out IHT on CLT's upon death (not lifetime charges) do you reduce the NRB of gross chargeable transfers from 7 days YEARS from date of gift or date of death? As my tutor is telling me from date of gift and my study text tells me from date of death? PLEASEEE HELP!!

    I would first identify gifts (PETs or CLTs) made in the 7 years before the death.
    Then to calculate the NRB for each gift you look back 7 years from the date of the gift.
    MCje95
  • MCje95MCje95 Registered Posts: 3
    Thank you! One more thing for the computations of income tax / death estate would I be rounding to pounds or pounds and pence, and when having to minus should I use brackets or the minus sign or neither? As on the sample assignments there are no instructions for them
  • PeterCPeterC Registered, Tutor Posts: 152
    I'm very sorry, my previous answer was incomplete. If there is a CLT, then at death:
    1) Calculate IHT on the CLT. When doing this, the NRB is reduced by CLTs (and PETs) in the 7 years PRIOR TO THE GIFT
    2) Calculate IHT on the estate. When doing this, the NRB is reduced by CLTs (and PETs) in the 7 years PRIOR TO DEATH
    MCje95
Sign In or Register to comment.