Lifetime Transfers Print
IHT is not immediately chargeable on most lifetime transfers. Transfers made more than 7 years before death are normally exempt from IHT. However, if the transferor dies within 7 years of making a gift, IHT is chargeable on the transfer, subject to the following reductions:
|Years between gift and death||Percentage of full charge at Death Rates|
This is not as generous as it first appears because the above reduction is made after deducting the Nil-rate band from the value transferred. Accordingly, if the only gifts made during the last 7 years of the individual’s lifetime are less than the Nil-rate band of £325,000, then the value of the transfers are deducted from the Nil-rate band, and the balance of the Nil-rate band is deducted from the value of the estate.
Paul died on 30 October 2018. In September 2013 he made a lifetime transfer of £230,000 after deduction of the annual allowance. The £230,000 is deducted from the Nil-rate band so that the balance of the Nil-rate band deductible from his estate on death is £95,000.
If instead, Paul had given £500,000 in September 2013, then the full Nil-rate band is deducted from the value of the gift, leaving £175,000. As the gift was made more than 5 years before death, the £175,000 is reduced by £105,000 (60%) to leave £70,000 (40%) chargeable to IHT.