general Inheritance Tax questions

Hi,
I thought I knew the answers to the following questions, but now I'm not 10 0% sure, so I wonder if somebody could clarify them.
1) Where transfers are made that are "potentially exempt", I know that they eat up your nil-rate band before the balance in excess of the NRB can beco me chargeable.
Now, I know they get 100% taper relief after seven years. However, say I ma ke a transfer of £750,000 and the nil-rate band in twenty years time is £500,000. Do I assume that based on current legislation, that my nil-rate band is always going to be zero unless the nil-rate band exceeds the value of the transfer ?
2) Assuming the above is the case, then there never will be a nil-rate band to can be passed to a spouse ?
Thanks in advance if anyone can clear these points.
Rgds Nigel.
Reply to
N. Sloane
I may have misunderstood your question since if your transfer of ?750,000 is a gift to an individualthen after 20 years it does not affect IHT on your estate. As HMRC say in their simple guide at
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"Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift." Do you have in mind a transfer which is not potentially exempt - eg to a trust? If so that too falls out of account after 7 years. See eg
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Reply to
Robin
No, I'm not talking about lifetime transfers into discretionary trusts.
I'm talking about normal PETs. As PETs take precedence over other assets in making up your nil-rate band, the relief is only effective with gifts in e xcess of the nil-rate band, because if they were less, there would be no ta x to relieve.
But are you saying that after seven years, it totally falls out the estate (not just for tax relief purposes) and you get back any nil-rate band that you would have lost if you died within the first seven years ?
That's what I'm trying to clarify.
Thanks Nigel.
100% sure, so I wonder if somebody could clarify them.
ey eat up your nil-rate band before the balance in excess of the NRB can be come chargeable.
make a transfer of £750,000 and the nil-rate band in twenty years time is £500,000. Do I assume that based on current legislation, that my nil-rat e band is always going to be zero unless the nil-rate band exceeds the valu e of the transfer ?
nd to can be passed to a spouse ?
Reply to
N. Sloane
Yep. The thing to focus on is that when you die IHT is calculated on what your estate is then plus any chargeable gifts made in the previous 7 years, all worked out using the nil rate band as it is when you die.
Reply to
Robin
OK, thanks, that is a lot clearer to me know.
But in the back of my mind I was also thinking about what is known as the " 14 year rule", where if you die and have a failed PET, you need to look bac k another seven years.
Does that only apply if you previously made a chargeable lifetime transfer to a discretionary trust ?
Also, I was looking this up earlier, and some literature states that you ca n offset two years of annual allowances (2 x £3,000 = £6,000) against a PET. I always assumed that you would only use the allowances available t he tax year you made the PET ? Do you know anything about that ?
I won't ask any more questions. I promise !!!
Thanks Nigel.
Reply to
N. Sloane
You are testing to destruction my memory of IHT ;) So much so that I've cheated and looked at this article from Scottish Widows in order to find examples. (I've no connection with them but they and the other life companies tend to have decent stuff on IHT for obvious reasons).
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As they set out, you are right that the "14 year rule" only comes into play if there's a chargeable transfer in the 7 years before a PET which was made less than 7 years before death.
I think that's just the result of the way you can carry forward any unused part of the ?3,000 annual exemption to the following year. See
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Reply to
Robin
"14 year rule", where if you die and have a failed PET, you need to look b ack another seven years.
You are right that it is the tax that is tapered not the gift. THis point is often got wrong even in published self-help books on the subject. The g ifts within the last seven years use up the nil band.
In addition, although the original legislation, I am told, did not specify the order in which to take the gifts off the nil band, HMRC invariably use the order in which the gifts were made thus maximising the tax take. i think the 14 year rule is useful if you made a gift, say 7 years before y ou die that was the last in a series of "regular gifts out of income". To demonstrate that it qualified for a RGOOI that you need records going back beyond the 7. the use of regular gifts out of income is a good way to red uce the tax bill.
Robert
RObert
Reply to
RobertL

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