Lifetime transfers: specific lifetime reliefs: gifts with reservation (GWRs): example of calculations 1
In January 2010, Alistair gives a holiday home worth £400,000 (after annual exemption (IHTM14141) to Brenda but continues to use the home on a regular basis. The potentially exempt transfer (PET) (IHTM04057) is also a GWR for Inheritance Tax.
Alistair dies in November 2012, having continued to use the holiday home up to his death. It is then worth £450,000 and is treated as part of his estate. The remaining death estate is valued at £500,000. There are no other gifts.
Ignore the lifetime charge and charge the holiday home as part of Alistair’s death estate.
Jan 2010 - gift ignored, so tax nil
Nov 2012 - tax on death estate of £950,000 = £250,000 (total tax)
Charge the lifetime gift and ignore the holiday home as part of the death estate.
Jan 2010 - tax on £400,000 gift = £30,000
Nov 2012 - tax on death estate of £500,000 (no nil rate band available) = £200,000
Total tax £230,000.
The first calculation charging the GWR property as part of the death estate results in the greater amount of tax being payable. Tax is therefore charged on the basis of the first calculation, with the value of the PET being reduced to nil.