Lifetime transfers: the charge to tax: cumulation with the death estate
You calculate tax on the death estate by cumulating the values transferred by chargeable transfers in the seven preceding years.
Chargeable transfers that cumulate with the death estate include both
- immediately chargeable transfers (IHTM14531), and
- failed potentially exempt transfers (PETs) (IHTM14511).
Trevor makes the following transfers (after exemptions and reliefs):
- £50,000 to his son, Ryland, in January 2002
- £75,000 to a discretionary trust in June 2006
- £50,000 to his daughter, Sioned, in January 2008
Trevor dies in October 2010 with a death estate of £225,000
The value for tax on the death is
June 2006 = £75,000
Jan 2008 = £50,000
Death estate = £225,000
Total value = £350,000
The gift in January 2002 is outside seven years of the death and so is omitted.
If the lifetime transfers exceed the Inheritance Tax nil rate band before adding the death estate, then to calculate the tax due on the death estate you will need to:
- deduct any tax attributable to the lifetime transfers from the total tax charge. Where this applies, the tax on the death estate will be simply 40% x chargeable value of the death estate.
You also consider cumulation when calculating the tax charge on PETs and immediately chargeable transfers themselves. If a lifetime transfer exceeds the nil rate band after cumulation, tax is directly chargeable on that transfer. The value transferred is “chargeable in its own right”.
The sections later in this manual explain how you consider cumulation and calculate tax on
additional charges on immediately chargeable transfers because of a death