The following example brings together most of the points covered in the IHT article. It is much longer than a typical exam question.
Jing died on 21 January 2015. She had made the following lifetime gifts:
| 3 March 2007 | A gift of 126,000 to a trust |
| 8 August 2009 | A gift of £206,000 to her son |
| 12 January 2010 | A gift of £40,000 to her husband |
| 10 May 2011 | A gift of £200 to a nephew |
| 23 June 2011 | A gift of £40,000 to her daughter when she got married |
| 2 September 2011 | A gift of £300,000 to a trust |
Jing paid any IHT arising from the gifts to the trusts.
At the date of her death Jing owned the following assets:
- A holiday cottage valued at £220,000. This had an outstanding endowment mortgage of £60,000.
- Units in the Global Trust, a unit trust, valued at £12,000.
- Cash deposits in new individual savings accounts of £16,800.
- A motor car valued at £8,000.
- A life assurance policy on her own life. On 21 January 2015 the policy had an open market value of £45,000, and proceeds of £50,000 were received following Jing’s death.
On 21 January 2015 Jing owed £3,600 in respect of a personal loan from a bank, and had gambling debts of £600. The cost of her funeral amounted to £3,200.
Under the terms of her will Jing left £100,000 to her husband, a specific legacy of £40,000 to her brother, and the residue of the estate to her children.
Nil rate bands are as follows:
| £ | ||
|---|---|---|
| 2006–07 | 285,000 | |
| 2009–10 | 325,000 | |
| 2011–12 | 325,000 |
IHT liabilities are as follows:
Lifetime transfers
3 March 2007
| £ | |||
|---|---|---|---|
| Value transferred | 126,000 | ||
| Annual exemptions 2006–07 2005–06 | 3,000 3,000 | ||
| 6,000 | |||
| Chargeable transfer | 120,000 |
- No lifetime IHT is payable as the CLT is less than the nil rate band for 2006–07.
8 August 2009
| £ | |||
|---|---|---|---|
| Value transferred | 206,000 | ||
| Annual exemptions 2009–10 2008–09 | 3,000 3,000 | ||
| 6,000 | |||
| Potentially exempt transfer | 200,000 |
12 January 2010
Exempt as a transfer to spouse.
10 May 2011
Exempt as a small gift under £250.
23 June 2011
| £ | |||
|---|---|---|---|
| Value transferred | 40,000 | ||
| Marriage exemption | 5,000 | ||
| Annual exemptions 2011–12 2010–11 | 3,000 3,000 | ||
| (11,000) | |||
| Potentially exempt transfer | 29,000 |
2 September 2011
| £ | ||
|---|---|---|
| Net chargeable transfer | 300,000 | |
| IHT liability 205,000 at nil% 95,000 x 20/80 | 0 23,750 | |
| Gross chargeable transfer | 323,750 |
- The PET made on 23 June 2011 has utilised the annual exemptions for 2011–12 and 2010–11.
- The CLT made on 3 March 2007 is within seven years of 2 September 2011, so it utilises £120,000 of the nil rate band for 2011–12.
- The due date for the IHT liability of £23,750 payable by Jing was 30 April 2012.
Additional liabilities arising on death
3 March 2007
| £ | ||
|---|---|---|
| Chargeable transfer | 120,000 |
- This CLT was made more than seven years before the date of Jing’s death on 21 January 2015.
8 August 2009
| £ | ||
|---|---|---|
| Potentially exempt transfer | 200,000 |
- The seven year cumulative total is £320,000 (120,000 + 200,000), which is less than the nil rate band for 2014–15 of £325,000. No IHT is payable.
23 June 2011
| £ | ||
|---|---|---|
| Potentially exempt transfer | 29,000 | |
| IHT liability 5,000 at nil% 24,000 at 40% | 0 9,600 | |
| Taper relief reduction – 20% | (1,920) | |
| 7,680 |
- The seven year cumulative total is £320,000 so £5,000 (325,000 – 320,000) of the nil rate band for 2014-15 of £325,000 is available.
- The taper relief reduction is 20% as the gift to the daughter was made between three and four years of the date of Jing’s death.
- The due date for the IHT liability of £7,680 payable by Jing’s daughter is 31 July 2015.
2 September 2011
| £ | ||
|---|---|---|
| Gross chargeable transfer | 323,750 | |
| IHT liability 323,750 at 40% | 129,500 | |
| Taper relief reduction – 20% | (25,900) | |
| 103,600 | ||
| IHT already paid | (23,750) | |
| Additional liability | 79,850 |
- The seven year cumulative total is £349,000 (120,000 + 200,000 + 29,000) so the nil rate band for 2014–15 has been fully utilised.
- The taper relief reduction is 20% as the gift to the trust was made between three and four years of the date of Jing’s death.
- The due date for the IHT liability of £79,850 payable by the trust is 31 July 2015.
Death estate
| £ | |||
|---|---|---|---|
| Property | 220,000 | ||
| Units in Global Trust | 12,000 | ||
| New individual savings accounts | 16,800 | ||
| Motor car | 8,000 | ||
| Proceeds of life assurance policy | 50,000 | ||
| 306,800 | |||
| Bank loan | 3,600 | ||
| Funeral expenses | 3,200 | ||
| _____ | (6,800) | ||
| Value of estate | 300,000 | ||
| Spouse exemption | (100,000) | ||
| Chargeable estate | 200,000 | ||
| IHT liability 200,000 at 40% | 80,000 |
- The due date for the IHT liability of £80,000 payable by the personal representatives of Jing’s estate is 31 July 2015.
- Jing’s husband will inherit £100,000, her brother will inherit £40,000, and the children will inherit the residue of £80,000 (300,000 – 100,000 – 40,000 – 80,000).
