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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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- Lifetime transfers: the charge to tax: additional charges: the additional tax payable (example 1)

Margaret made three lifetime transfers in excess of the annual exemption

Jan 2009 £250,000 to a discretionary trust
   
Dec 2009 £120,000 to her son as a potentially exempt transfer (PET)
July 2010 £200,000 to discretionary trust

Margaret died on 1 November 2012

No tax was payable on the Jan 2009 transfer because it was below the nil rate band.

No tax was payable on the Dec 2009 PET when it was made.

Lifetime tax on the July 2010 chargeable transfer

Tax immediately payable on the transfer was:

Previous lifetime total (the PET is omitted) = £250,000
   
July 2010 + £200,000
Value now chargeable = £450,000
Less nil rate band at date of transfer - £325,000
  = £125,000
Tax at 20% (half death rate) on £125,0000 = £25,0000
Total tax due = £25,0000

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Tax on the PET

Margaret’s death in Nov 2012 makes the PET chargeable.

The tax calculation is:

Previous lifetime total =£250,000
   
PET =£120,000
Value now chargeable =£370,000
Less IHT nil rate band at date of death - £325,000
  = £45,000
Tax at 40% on £45,000 = £18,000

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Additional tax on the July 2010 transfer payable on death within 7 years

On Margaret’s death, you recalculate the tax on the transfer:

Previous lifetime total (now includes the PET) = £370,000
   
July 2010 + £200,000
Value now chargeable = £570,000
Less IHT nil rate band at date of death - £325,000
  = £245,000
Tax at 40% on £245,000 =£98,000
Less tax at 40% on £370,000 - £18,000
Less tax previously paid on the July 2010 transfer - £25,000
Total tax payable on the July 2010 transfer on Margaret’s death =£55,000