Inheritance tax changes may be coming
Inheritance Tax (IHT) is a concern for many clients and some may be looking to carry out estate planning in such a way that the liability to IHT is mitigated as far as possible.
‘Liability’ should be discussed in two separate ways. Liability itself is concerned with who must actually send any IHT due to the revenue. Who bears the ‘burden’ of IHT may be different and not something that HMRC is concerned with but will undoubtedly be of interest to your clients.
Lifetime Chargeable Transfers:
IHT charged on the value of a lifetime chargeable transfer (taking into account the Nil Rate Band) normally falls due six months after the end of the month in which the transfer takes place however, if the transfer takes place between 6th April and 30th September then IHT is due on 30th April the following year.
The liability for and burden of IHT in lifetime transactions lies with the
transferor although it is possible for the transferee to agree to pay the tax. There is only likely to be a lifetime chargeable transfer where assets are put into a discretionary trust (as gifts to individuals are a PET). If the tax is not paid by the transferor by the due date then the trustees will become liable.
Where a person dies within 7 years of making a lifetime chargeable transfer on which tax was due then additional tax may become payable though credit will be given for tax paid. This will be due six months after the end of the month in which the death occurred. The primary liability for this tax lies with the transferee (i.e. the trustees). If the tax remains unpaid then HMRC can seek payment from anyone who has an interest in the settlement or from the personal representatives of the deceased’s estate.
PETS which become chargeable:
Where death occurs within 7 years of making a PET and a tax liability arises it must be paid six months after the end of the month in which the death occurs. The transferee is primarily liable for the tax and bears the burden. If the tax is unpaid then the personal representatives of the estate are liable.
IHT due on death:
IHT payable on death is again due six months after the end of the month in
which death occurred. Where the liability and burden for IHT fall depends on the property comprised within the estate. On the deceased’s free estate the personal representatives will be liable for the IHT. If the Will is silent as to the burden then tax is normally borne by the residue. If the testator has stated in the Will that gifts are to bear their own tax then this direction will normally prevail.
Where the estate contains settled property in which the deceased had an
interest then the trustees are liable for the IHT due. The burden falls on the
property held by the trust.
If there is property that passes outside the Will or intestacy then it is the
beneficiary of that asset that bears the burden, although liability still rests with the personal representatives. As all the current IHT rules are currently being reviewed you should act sooner rather than later to put IHT mitigation into place.