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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Tax burden on death: received lifetime transfers

The same principles as those outlined at IHTM22074 apply in calculating the net benefit to your deceased when they received an earlier chargeable lifetime transfer. Where the transfer was a failed potentially exempt transfer (PET) (IHTM04057) and the transferor died before your deceased they will, as the transferee, normally have been liable for and have to pay the tax.

Example

Tonya gave Belinda £350,000 cash in August 2007. Tonya died in January 2010. She had made no other lifetime transfers. On Tonya’s death the PET became chargeable. The tax calculation was:

 

Value transferred £350,000
   
Less annual exemptions £6,000
Chargeable transfer £344,000

 

The tax of £7,600 was paid by Belinda, as she was the person liable to pay it.

Belinda dies in July 2011. Quick succession relief (QSR) is based on an increase in Belinda’s estate of:

 

Chargeable transfer £344,000
   
Less tax £    7,600
Net increase £336,400

 

The full calculation is:

 

(£336,400 ÷ £344,000) × £7,600 × 80% = £5,946
             

 

In this example, the transferor died before the beneficiary.  However the order of the deaths could be reversed. If

  • your deceased received a PET from the transferor, and
  • your deceased, as transferee, dies within five years of the PET being made, and
  • the transferor then dies within seven years of the PET being made

it is possible that QSR may be due on any tax which becomes payable on the transferor’s later death. This is known as potential quick succession relief or PQSR (IHTM22080).