Trusts and Inheritance Tax

Clawback of BPR on death

Produced by Tolley
  • 19 Oct 2021 23:09

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

  • Clawback of BPR on death
  • Conditions for retaining BPR
  • Ownership by the transferee
  • Class of qualifying property
  • Qualifying replacement property
  • Effect of BPR clawback on cummulation

Clawback of BPR on death

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 lifetime transfer (CLT), tax is recalculated at death rates. If the amount of the transfer was reduced by business property relief (BPR), the additional charge to tax is applied to the reduced amount.

Alternatively, IHT may arise if the transfer was 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.

For information on the basic principles of BPR, see the BPR overview guidance note.

See also Simon’s Taxes I7.191.

However, in both cases, the additional charge to IHT will be applied to the transfers without the benefit of BPR unless certain conditions are met.

Conditions for retaining BPR

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

  1. 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

  2. the property is not, at the time of the death, subject to a binding contract for sale, and

  3. the property qualifies for BPR at the date of the transferor’s death

IHTA 1984, s 113A(3)

If any one of these conditions are not met, there will be a clawback of BPR on the transferor’s death.

Ownership by the transferee

On the date of the transferor’s death the transferee must still own the property given to him by the transferor. Should the transferee die before the transferor, then the ownership condition will be satisfied if the transferee still owned the property at the time of his death.

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