- The promise to pay the friend’s legal fee is not deductible as it is not legally enforceable.
- Unlike capital gains tax, there is no exemption for motor cars, individual savings accounts, saving certificates from NS&I or for government stocks.
- The IHT liability on the life assurance policy could have easily been avoided if the policy had been written into trust for the beneficiaries of Andy’s estate. The proceeds would have then been paid direct to the beneficiaries, and not formed part of Andy’s estate. However, this aspect is not examinable at Paper F6 (UK).
Payment of inheritance tax
Chargeable lifetime transfers (CLTs)
The donor is primarily responsible for any IHT that has to be paid in respect of a CLT. However, a question may state that the donee is to instead pay the IHT. Remember that grossing up is only necessary where the donor pays the tax.
The due date is the later of:
- 30 April following the end of the tax year in which the gift is made.
- Six months from the end of the month in which the gift is made.
Therefore if a CLT is made between 6 April and 30 September in a tax year then any IHT will be due on the following 30 April. If a CLT is made between 1 October and 5 April in a tax year then any IHT will be due six months from the end of the month in which the gift is made.
The donee is always responsible for any additional IHT that becomes payable as a result of the death of the donor within seven years of making a CLT. The due date is six months after the end of the month in which the donor died.
Potentially exempt transfers (PETs)
The donee is always responsible for any additional IHT that becomes payable as a result of the death of the donor within seven years of making a PET. The due date is six months after the end of the month in which the donor died.
The personal representatives of the deceased’s estate are responsible for any IHT that is payable. The due date is six months after the end of the month in which death occurred. However, the personal representatives are required to pay the IHT when they deliver their account of the estate assets to HM Revenue and Customs, and this may be earlier than the due date.
Where part of the estate is left to a spouse then this part will be exempt and will not bear any of the IHT liability. Where a specific gift is left to a beneficiary then this gift will not normally bear any IHT. The IHT is therefore usually paid out of the non-exempt residue of the estate.
Alfred died on 15 December 2013. He had made the following lifetime gifts:
- 20 November 2011 – A gift of £420,000 to a trust. Alfred paid the IHT arising from this gift.
- 8 August 2012 – A gift of £360,000 to his son.
These figures are after deducting available exemptions.
Alfred’s estate at 15 December 2013 was valued at £850,000. Under the terms of his will he left £250,000 to his wife, a specific legacy of £50,000 to his brother, and the residue of the estate to his children.
The nil rate band for the tax years 2011-12 and 2012-13 is £325,000.
IHT liabilities are as follows:
20 November 2011