Clawback of BPR on death

By Tolley in association with Peter Rayney of Peter Rayney Tax Consulting Ltd
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Rayney of Peter Rayney Tax Consulting Ltd provides comprehensive and up to date tax information covering:

  • Clawback of BPR on death
  • Conditions for retaining BPR
  • Qualifying replacement property
  • Effect of clawback on cumulation of lifetime transfer with later transfers

Where a transfer is made within seven years of death, an additional charge to inheritance tax may arise at the time of death:

  • if the transfer was chargeable during the transferor’s lifetime (CLT), tax is re-calculated at death rates.

    If the amount of the transfer was reduced by business property relief (BPR), the additional charge to tax is levied on the reduced amount.

  • inheritance tax will be charged for the first time if the lifetime transfer a potentially exempt transfer (PET).

    The amount of the transfer is reduced by BPR before the additional charge is levied, but only if there was an entitlement to BPR at the time the PET was made.

See the BPR guidance note.

However, in both cases the additional charge to inheritance tax will be levied on the transfers without the benefit of BPR if certain conditions are not met.

IHTA 1984, s 113A(1), (2)
Conditions for retaining BPR

BPR will reduce the value of a transfer made during the transferor’s lifetime as long as:

  • the transferee owns the property transferred at the date of the transferor’s death and has done so since he acquired it from the transferor
  • the property is not, at the time of the death, subject to a binding contract for sale, and
  • the property qualifies for BPR at the date of the transferor’s death

IHTA 1984, s 113A(3)

More on IHT reliefs: