IHTM14704 - PETs: calculations
Make separate calculations of the total tax payable as a result of the death
- charging the reacquired property in the death estate but ignoring the lifetime charge on the failed PET
and
- charging the PET as a lifetime transfer but ignoring the reacquired property in the death estate.
Retain the charge on the calculation which produces the higher amount of tax.
Note that the comparison is not between the tax payable on the failed PET and the tax payable on the reacquired property, but between the total tax payable on the death on the two bases.
Example
July 1997: Aaron makes a PET of £200,000 to Beccy
January 1998: Aaron makes an immediately chargeable gift of £240,000 to a discretionary trust. The tax on £240,000 at half death rates is £5,000
May 1999: Beccy dies leaving an estate of £300,000 which passes wholly to Aaron
May 2000: Aaron dies leaving an estate of £600,000, no part of which is exempt.
First calculation
Ignore the lifetime charge on the failed PET and charge the returned £200,000 as part of A’s estate on death
|
July 1997: |
£200,000 PET is ignored so tax is Nil |
|
Jan 1998: |
£240,000 chargeable transfer: |
|
240,000 - 234,000 (nil rate band at date of death) = |
£6,000 |
|
|
|
£6,000 x 40% =£2,400.
This is less than the lifetime tax of £5,000, so additional tax is nil.
|
May 2000: |
|
|
Jan 1998: |
240,000 |
|
Death estate: |
600,000 |
|
Total |
840,000 |
|
840,000 - 234,000 (nil rate band at date of death) = |
£606,000 |
|
x 40% = |
£242,400 |
|
less £2,400 tax on 240,000 |
£240,000 |
Nil plus £240,000 is therefore the total amount of tax to pay as a result of Aaron’s death = £240,000
Second calculation
Charge the failed PET but ignore the £200,000 returned to Aarons’s estate on Beccy’s death
|
July 1997: |
200,000 PET is sub-threshold and tax is Nil |
|
Jan 1998: |
240,000 chargeable transfer: |
|
|
440,000 |
|
440,000 - 234,000 (nil rate band at date of death) = |
£206,000 |
|
x 40% = |
£82,400 |
|
less tax on 200,000 |
Nil |
|
less lifetime tax paid |
£5,000 |
|
|
£77,400 |
|
May 2000: |
|
|
1997 PET: |
200,000 |
|
1998 transfer: |
240,000 |
|
death estate (ignoring returned £200,000) |
400,000 |
|
|
840,000 |
|
840,000 - 234,000 (nil rate band at date of death) = |
£606,000 |
|
x 40% = |
£242,400 |
|
Less £82,400 tax on 440,000 = |
£160,000 |
£160,000 plus £77,400 = £237,400 is therefore the total tax to pay as a result of Aaron’s death
The first calculation is the preferred option, so you would retain that tax calculation and reduce the second to nil.
