PET with reservation

The latter, I would have thought. But:

If there aren't enough years between 2003 and death to generate enough taper relief, then it might be more advantageous to treat it as a 1998 GWR (pretending the reservation did not cease in 2003) than as a 2003 PET.

Assume Mr X dies with a remaining estate of value exactly equal to the IHT threshold. Then, going the PET route, if he dies in 2003-5, the full 120k would be taxed, if he dies in or after 2010, none of it would be taxed, and if he dies in 2006/7/8/9, then 96/72/48/24k would be taxed. But going the GWR route, 60k would be taxed. So there is no advantage to claiming cessation of reservation unless he dies in or after 2008.

Several points to query.

1. taper relief would only apply surely if the PET(or cumulative PETs) exceeded the nil-rate band, which in this case it doesn't.
2. I was unaware that there was a choice to treat it differently. Surely if the reservation ceased at death(or if so claimed) the value would be calculated as the value at death(not the low 1998 value), on the same logical grounds that the 2003 value would be used if the reservation ceased in 2003...
3. Assuming what you said is true i.e. there is an alternative calculation, isn't it revenue practice to determine which calculation is to be used(either to their advantage or the taxpayers), rather than give the taxpayer the option which one he would like.
4. Irrespective of the above, wouldn't "pretending" that a reservation continued to death to obtain more favourable tax treatment amount to fraud?

Of course. Sorry.

I don't think so. I think a GWR is valued at the time of gifting. Likewise a PET is valued at time of gifting. If and when a GWR at a later date changes status into a PET, I reckon the logic is that the earlier GWR is simply cancelled and replaced by the later PET.

Were it otherwise, logic would suggest that *both* GsWR and PETs should be revalued at death, and not when they were made.

I think practice would be to use whichever is more favourable to the taxpayer, who, after all, has the right to arrange his tax affairs -within the law- to his best advantage.

Not if more favourable treatment is an entitlement. In any case, the thing about a reservation is that it amounts to the retaining of a right, but that doesn't include an obligaton to exercise that right. Accordingly, evidence of non-exercise is not evidence of cessation of reservation. Conversely, however, evidence of exercise of a right is evidence of non-cessation of reservation.

Normally a taxpayer would seek to claim reservation had ceased (in order to invoke the 7 year rule) and it would be up to IR, if they were so minded, to dispute the claim by digging up evidence of occupation to prove persistence of reservation.

In message , Ronald Raygun writes

Not so.

If this was the only PET then there will be no taper relief cos the PETs are less than the Nil Rate Band.. Dont you remember anything? I told you this in 1998!

Aargh! I'm sure someone else told me since then too. Must be age (or drink) affecting my memory.

It's one of the rules that tend to catch one out because they don't quite work the way one feels they should. :-(