back to previous page

    1.    This Schedule provides examples of the operation of the Regulations.

    2.    In this Schedule—
"cumulation" means the inclusion of the total chargeable transfers made by the transferor in the 7 years preceding the current transfer;
"GWR" means gift with reservation;
"taper relief" means the reduction in tax provided under section 7(4) of the 1984 Act, inserted by paragraph 2(4) of Schedule 19 to the 1986 Act.

    3.    Except where otherwise stated, the examples assume that—

—tax rates and bands remain as at 18 March 1987;

—the transferor has made no other transfers than those shown in the examples;

—no exemptions (including annual exemption) or reliefs apply to the value transferred by the relevant transfer; and

—"grossing up" does not apply in determining any lifetime tax (the tax is not borne by the transferor).

Regulation 4: Example


Jul 1987	A makes PET of £100,000 to B.
Jul 1988	A makes gift into discretionary trust of £95,000.	Tax paid £750
Jan 1989	A makes further gift into same trust of £45,000.	Tax paid £6,750
Jan 1990	B dies and the 1987 PET returns to A.
Apr 1991	A dies. His death estate of £300,000 includes the 1987 PET returned to him in 1990, which is still worth £100,000.

First calculation under reg. 4 (4)(a)
Charge the returned PET in A's death estate and ignore the PET made in 1987.

		Tax
(001) In first calculation the tax of £153,000 on death estate does not allow for any successive charges relief (under S.141 IHTA 1984) that might be due in respect of "the returned PET" by reference to any tax charged on that "PET" in connection with B's death.  back
Jul 1987	PET £100,000 ignored	NIL
Jul 1988	Gift £95,000Tax £1,500 less £750 already paid	£750
Jan 1989	Gift £45,000 as top slice of £140,000Tax £13,500 less £6,750 already paid	£6,750
Apr 1991	Death estate £300,000 as top slice of £440,000	£153,000(001)
	Total tax due as result of A's death	£160,500

Second calculation under reg. 4 (4)(b)
Charge the 1987 PET and ignore the value of the returned PET in A's death estate.

		Tax
Jul 1987	PET £100,000. Tax with taper relief	£2,400
Jul 1988	Gift £95,000 as top slice of £195,000Tax £34,000 less £750 already paid	£33,250
Jan 1989	Gift £45,000 as top slice of £240,000Tax £20,000 less £6,750 already paid	£13,250
Apr 1991	Death estate £200,000 as top slice of £440,000	£111,000
	Total tax due as result of A's death	£159,900

Result⁽⁰⁰²⁾ 
First calculation gives higher amount of tax. So PET reduced to nil and tax on other transfers is as in first calculation.⁽⁰⁰²⁾ If, after allowing any successive charges relief, the second calculation gives higher amount of tax, 1987 PET will be charged and tax on other transfers will be as in second calculation.  back

Regulation 5: Example 1


Jan 1988	A makes PET of £150,000 to B.
March 1992	A makes gift of land worth £200,000 into a discretionary trust of which he is a potential beneficiary. The gift is a "GWR".	Tax paid £19,500
Feb 1995	A dies without having released his interest in the trust. His death estate valued at £400,000, includes the GWR land curently worth £300,000.

First calculation under reg. 5 (3)(a)
Charge the GWR land in A's death estate and ignore the GWR.

		Tax
(003) Credit for the tax already paid cannot exceed the amount of the death tax attributable to the value of the GWR property. In this example the tax so attributable is £108,000 (ie  back
Jan 1988	PET (now exempt)	NIL
Mar 1992	GWR ignored	NIL
Feb 1995	Death estate £400,000Tax £144,000 less £19,500 already paid on GWR(003)	£124,500
	Total tax due as result of A's death	£124,500

144,000 400,000 × 300,000

).

So credit is given for the full amount of £19,500.

Second calculation under reg. 5 (3)(b)
Charge the GWR and ignore the GWR land in the death estate.

		Tax
Jan 1988	PET (now exempt)	NIL
March 1992	GWR £200,000Tax £39,000 less £19,500 already paid	£19,500
Feb 1995	Death estate £100,000 (ignoring GWR property) as top slice of £300,000	£48,000
	Total tax due as result of A's death	£67,500

Result
First calculation yields higher amount of tax. So the value of the GWR transfer is reduced to nil and tax on death is charged as in first calculation with credit for the tax already paid.

Regulation 5: Example 2


Apr 1987	A makes gift into discretionary trust of £1,500,000	Tax paid £9,500
Jan 1988	A makes further gift into same trust of £50,000.	Tax paid £10,000
Mar 1993	A makes PET of shares valued at £150,000 to B.
Feb 1996	A dies. He had continued to enjoy the income of the shares he had given to B (the 1993 PET is a GWR). His death estate, valued at £300,000, includes those shares currently worth £200,000.

First calculation under reg. 5 (3)(a)
Charge the GWR shares in the death estate and ignore the PET.

		Tax
Apr 1987	Gift £150,000. No adjustment to tax as gift made more than 7 years before death	NIL
Jan 1988	Gift £50,000. No adjustment to tax as gift made more than 7 years before death	NIL
Mar 1993	PET £150,000 now reduced to NIL	NIL
Feb 1996	Death estate including GWR shares £300,000. No previous cumulation	£87,000
	Total tax due as result of A's death	£87,000

Second calculation under reg. 5(3)(b)
Charge the PET and ignore the value of the GWR shares in the death estate.

		Tax
Apr 1987	Gift £150,000. No adjustment to tax as gift made more than 7 years before death	NIL
Jan 1988	Gift £50,000. No adjustment to tax as gift made more than 7 years before death	NIL
Mar 1993	GWR £150,000 as top slice of £350,000 (ie previous gifts totalling £200,000+£150,000)	£75,000
Feb 1996	Death estate (excluding GWR shares) £100,000 as top slice of £250,000 (the 1987 and 1988 gifts drop out of cumulation)	£43,000
	Total tax due as result of A's death	£118,000

Result
Second calculation yields higher amount of tax. So tax is charged by reference to the PET and the value of the GWR shares in the death estate is reduced to NIL.

Regulation 6: Example 1


Nov 1987	X makes a PET of cash of £95,000 to Y.
Dec 1987	Y makes a loan to X of £95,000.
May 1988	X makes a gift into discretionary trust of £20,000.
Apr 1993	X dies. His death estate is worth £182,000. A deduction of £95,000 is claimed for the loan from Y.

First calculation under reg. 6 (3)(a)
No charge on November 1987 gift, and no deduction against death estate.

		Tax
Nov 1987	PET ignored	NIL
May 1988	Gift £20,000	NIL
Apr 1993	Death estate £182,000 as top slice of £202,000	£39,800
	Total tax due as result of X's death	£39,800

Second calculation under reg. 6 (3)(b)
Charge the November 1987 PET, and allow the deduction against the death estate.

		Tax
Nov 1987	PET £95,000. Tax with taper relief	£600
May 1988	Gift £20,000 as top slice of £115,000. Tax with taper relief	£3,600
Apr 1993	Death estate (£182,000—loan of £95,000) £87,000 as top slice of £202,000	£32,300
	Total tax due as result of X's death	£36,500

Result
First calculation gives higher amount of tax. So debt is disallowed against death estate, but PET of £95,000 is not charged.

Regulation 6: Example 2


Aug 1988	P makes a PET of cash of £100,000 to Q.
Sept 1988	Q makes a loan to P of £100,000.
Oct 1989	P makes gift into discretionary trust of £98,000.	Tax paid £1,200
Nov 1992	P dies. Death estate £110,000 less allowable liabilities of £80,000 (which do not include the debt of £100,000 owed to Q).

First calculation under reg. 6 (3)(a)
No charge on August 1988 PET, and no deduction against death estate for the £100,000 owned to Q.

		Tax
Aug 1988	PET ignored	NIL
Oct 1989	Gift £98,000Tax (with taper relief) £1,920 less £1,200 already paid	£720
Nov 1992	Death estate £30,000 as top slice of £128,000	£9,000
	Total tax due as result of P's death	£9,720

Second calculation under reg. 6 (3)(b)
Charge the August 1988 PET, and allow deduction against death estate for the £100,000 owed to Q.

		Tax
Aug 1988	PET £100,000. Tax with taper relief	£1,800
Oct 1989	Gift £98,000 as top slice of £198,000Tax (with taper relief) £28,100 less £1,200 already paid	£26,960
Nov 1992	Death estate £30,000—£100,000 (owed to Q)	NIL
	Total tax due as result of P's death	£28,760

Result
Second calculation gives higher amount of tax. So the PET to Q is charged, and deduction is allowed against death estate for the debt to Q.

Regulation 6: Example 3


1 May 1987	A makes PET to B of £95,000.
1 Jan 1988	A makes PET to B of £40,000.
1 Jul 1988	A makes gift into discretionary trust of £100,000.	Tax paid £1,500
1 Jan 1989	A makes PET to B of £30,000.
1 Jul 1989	B makes a loan to A of £100,000.
1 Dec 1990	A dies. Death estate £200,000, against which deduction is claimed for debt of £100,000 due to B.

First calculation under reg. 6 (3)(a)
Disallow the debt and ignore corresponding amounts (£100,000) of PETs from A to B, starting with the latest PET.

		Tax
1 May 1987	PET now reduced to £65,000	NIL
1 Jan 1988	PET now reduced to NIL	NIL
1 Jul 1988	Gift into trust £100,000 as top slice of £165,000Tax £25,000 less £1,500 already paid	£23,500
1 Jan 1989	PET now reduced to NIL	NIL
1 Dec 1990	Death estate £200,000 as top slice of £365,000	£98,000
	Total tax due as result of A's death	£121,500

Second calculation under reg. 6 (3)(b)
Allow the debt and charge PETs to B in full.

		Tax
1 May 1987	PET £95,000. Tax with taper relief	£1,200
1 Jan 1988	PET £40,000 as top slice of £135,000	£12,000
1 Jul 1988	Gift into trust £100,000 as top slice of £235,000Tax £41,000 less £1,500 already paid	£39,500
1 Jan 1989	PET £30,000 as top slice of £265,000	£15,000
1 Dec 1990	Death estate £100,000 as top slice of £365,000	£53,500
	Total tax due as result of A's death	£121,200

Result
First calculation yields higher amount of tax. So the debt is disallowed and corresponding amounts of PETs to B are ignored in determining the tax due as a result of the death.

Regulation 6: Example 4


1 Apr 1987	A makes gift into discretionary trust of £100,000.	Tax paid £1,500
1 Jan 1990	A makes PET to B of £60,000.
1 Jan 1991	A makes further gift into same trust of £50,000.	Tax paid £8,000
1 Jan 1992	Same trust makes a loan to A of £120,000.
1 Jun 1994	A dies. Death estate is £220,000, against which deduction is claimed for debt of £120,000 due to the trust.

First calculation under reg. 6 (3)(a)
Disallow the debt and ignore corresponding amounts (£120,000) of gifts fromA to trust, starting with the latest gift.

		Tax
1 Apr 1987	Gift now reduced to £30,000. No adjustment to tax already paid as gift made more than 7 years before death	NIL
1 Jan 1990	PET £60,000 as top slice of £90,000	NIL
1 Jan 1991	Gift now reduced to NIL. No adjustment to tax already paid	NIL
1 Jun 1994	Death estate £220,000 as top slice of £280,000 (the 1987 gift at £30,000 drops out of cumulation)	£77,000
		£77,000
	Less credit for tax already paid £1,500+£8,000	£9,500
	Total tax due as result of A's death	£67,500

Second calculation under reg. 6 (3)(b)
Allow the debt and no adjustment to gifts into the trust.

		Tax
1 Apr 1987	Gift £100,000. No adjustment to tax already paid as gift made more than 7 years before death	NIL
1 Jan 1990	PET £60,000 as top slice of £160,000. Tax with taper relief	£12,000
1 Jan 1991	Gift £50,000 as top slice of £210,000Tax (with taper relief) £16,000 less £8,000 already paid	£8,000
1 June 1994	Death estate £100,000 as top slice of £210,000. (The 1987 gift drops out of cumulation. No credit for tax paid on that gift.)	£37,000
	Total tax due as result of A's death	£57,000

Result
First calculation yields higher amount tax. So the debt is disallowed and corresponding amounts of gifts into trust are ignored in determining the tax due as a result of the death.

Regulation 7: Example


May 1986	S transfers into discretionary trust property worth £150,000. Immediate charge at the rates then in force.	Tax paid £13,750
Oct 1986	S gives T a life interest in shares worth £85,000. Immediate charge at the rates then in force.	Tax paid £19,500
Jan 1991	S makes a PET to R of £20,000.
Dec 1992	T dies, and the settled shares return to S who is the settlor and therefore no tax charge on the shares on T's death.
Aug 1993	S dies. His death estate includes the shares returned from T which are currently worth £75,000, and other assets worth £144,000.

First calculation under reg. 7 (4)(a)
Charge the returned shares in the death estate and ignore the October 1986 gift. Tax rates and bands are those in force at the date of S's death.

		Tax
(004) £19,350 represents the amount of the death tax attributable to the value of the returned shares, and is lower than the amount of the lifetime tax charged on those shares. So credit against the death charge for the tax already paid is restricted to the lower amount.  back
May 1986	Gift into trust made more than 7 years before death. So no adjustment to tax already paid but the gift cumulates in calculating tax on other gifts	NIL
Oct 1986	Gift ignored and no adjustment to tax already paid	NIL
Jan 1991	PET of £20,000 as top slice of (£150,000+£20,000) £170,000	£8,000
Nov 1993	Death estate £219,000 as top slice of £239,000Tax £56,000 less £19,350 (part of tax already paid)(004)	£37,150
	Total tax due as result of S's death	£45,150

Second calculation under reg. 7 (4)(b)
Charge the October 1986 gift and ignore the returned shares in the death estate. Tax rates and bands are those in force at the date of S's death.

		Tax
(005) Credit for the tax already paid restricted to the (lower) amount of tax payable as result of the death. No repayment of the excess.  back
May 1986	Gift into trust made more than 7 years before death. So no adjustment to tax already paid but the gift is taken into acccount in calculating the tax on the other gifts	NIL
Oct 1986	Gifts of £85,000 as top slice of £235,000Tax (with taper relief) £7,100 less £19,500 already paid	NIL(005)
Jan 1991	PET of £20,000 as top slice of £255,000	£10,000
Aug 1993	Death estate (excluding the returned shares) £144,000 as top slice of £249,000 (£85,000+£20,000+£144,000)	£57,000
	Total tax due as a result of S's death	£67,000

Result
Second calculation gives higher amount of tax. So tax is charged as in second calculation by excluding the shares from the death estate.