Occasions of charge

By Tolley

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

  • Occasions of charge
  • The lifetime charge
  • The charge on death
  • The charge on settled property

The occasions on which a liability to inheritance tax can arise are:

  • when an individual transfers property into trust during his lifetime
  • on the death of an individual
  • when assets are transferred out of a trust
  • at 10 yearly intervals within a trust

All of these occasions reflect the purpose of IHT as a tax on the transfer of wealth.

The lifetime charge

The lifetime charge applies when a person makes a ‘transfer of value’ or ‘disposition’, as a result of which the value of his estate is less after the disposition than it was beforehand. The definition covers actual gifts of property, as well as notional dispositions. See the Chargeable transfers guidance note.

Re Owen [1949] 1 All ER 901 (subscription sensitive)

A transfer of value during a person’s lifetime may not be chargeable because it:

  • is excluded property. See the Excluded property and situs of assets guidance note
  • is outside the scope of inheritance tax. See the Dispositions that are not transfers of value guidance note
  • is an exempt transfer. See the Exempt transfers guidance note
  • is a potentially exempt transfer. See the Potentially exempt transfers guidance note
  • is within the nil rate band. See the Nil rate band guidance note
  • qualifies for BPR or APR at 100%. See the APR and BPR guidance notes

As a result of the above exclusions, a lifetime gift into a relevant property trust is the only type of disposition to suffer the lifetime charge to inheritance tax. Such gifts are referred to as chargeable lifetime transfers (CLT). Where tax is payable on lifetime

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