Chargeable lifetime transfers

Produced by Tolley

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Chargeable lifetime transfers
  • Principles of calculation
  • The rates of IHT
  • The cumulation principle
  • Taking account of the tax on the gift
  • Grossing up
  • Timing of lifetime transfers
  • Method for calculating the tax on a lifetime transfer

Chargeable lifetime transfers

This guidance note explains how to calculate the amount of tax that arises under the lifetime charge. In general terms the lifetime charge will apply to individuals who transfer property into a trust that is subject to the relevant property regime. See the Chargeable transfers and Occasions of charge guidance notes. Outright gifts to individuals and transfers into a disabled person's trust will qualify as potentially exempt transfers (PET) and will not incur a lifetime charge. See the Potentially exempt transfers guidance note.

The calculation of tax that arises under the additional charge and the estate charge is considered separately in The charge on death guidance note, although the principles which apply in all these cases are broadly the same.

Principles of calculation

The rates of IHT

The rates of IHT are different for lifetime transfers and transfers made on death. The lifetime rates are 0% and 20%. The 20% rate of tax applies to the amount of the transfer that exceeds the nil-rate band in force at the time the chargeable transfer is made. The nil rate band has been £325,000 since 6 April 2009 and is scheduled to remain at that level until 5 April 2021.

The cumulation principle

The tax due on a chargeable lifetime transfer (CLT) depends upon:

  1. the amount of the chargeable transfer in question, and

  2. the total amount of the gross CLTs made by the same transferor within the preceding seven years

The history of transfers in the preceding seven years is relevant because IHT is

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