Commentary

I5.286 Calculation of IHT for QIIPs examples

IHT, trusts and estates

I5.286 Calculation of IHT for QIIPs examples

I5.286 Calculation of IHT for QIIPs examples

Example 1—simple termination during lifetime

In September 2014 A surrendered his life interest in a fund to the remainderman. The settled property was then valued at £350,000.

A had made a CLT of £50,000 in March 2009, and a PET of £30,000 in April 2013. All annual exemptions have been used.

A died in February 2018.

The surrender of the life interest in September 2014 is a PET which becomes chargeable at 80% of the death rate due to taper relief. The potentially exempt transfer in April 2013 also becomes chargeable.

IHT is payable on the surrender of the life interest on £350,000.

The gross chargeable transfers in the previous seven years of £80,000 (£50,000 + £30,000) reduce the available nil rate band to £245,000 (£325,000 – £80,000).

IHT on £105,000 (£350,000 – £245,000):

£105,000 × 40% × 80% = £33,600.

Example 2—shares held both as life tenant and absolutely (1)

B had a life interest in a fund comprising a 10% holding of shares in XYZ Ltd, an investment company. B also owned a 45% holding outright.

In April 2014 he had made a chargeable transfer of £310,000, and in June 2015 the trustees exercised their power to advance the trust fund to B's son.

B died in October 2018. He had used all his annual exemptions and no other exemptions or reliefs were applicable on his death.

In June 2015 shares in XYZ Ltd were valued as follows:

  1.  

         a 10% holding = £50,000

  1.  

         a 45% holding = £250,000

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