Excepted settlements - death of the transferor
Where the settlor dies and relevant property charges have arisen, the trustees will need to ascertain whether or not the settlor had made any potentially exempt transfers within 7 years of the creation of the settlement. Where these fail by reason of the death of the settlor, this may alter the notional aggregate of chargeable transfers that was used to establish whether or not the relevant property charge was excepted from delivering an account.
On 1 August 2007 the settlor creates a settlement with £240,000 of quoted securities. This is an excepted transfer under the new regulations (IHTM06103). He had made no previous chargeable transfers.
In 3 June 2008 the professional trustees made an appointment of £75,000. The rate of IHT is based on a notional chargeable transfer of £240,000, which is less than 80% of the nil rate band at that time (£312,000) so the exit charge is not reportable.
Two months later the trustees discover that the settlor had died on 1 June 2008 and are advised by the settlor’s personal representatives that the settlor had made a PET of £50,000 in 2002, which is now a chargeable transfer by reason of the death.
Accordingly, the notional transfer at 3 June 2008 was £240,000 with a cumulation of £50,000. As this notional aggregate of chargeable transfers (£290,000) is greater than 80% of £312,000 the trustees are now required to deliver an account.
Note that if the failed PET were greater than £72,000 then not only would the exit charge be reportable but IHT would now be due.