Tx notes fa22 Final

4. Chargeable Lifetime Transfer 
A CLT is a transfer made in lifetime into a trust.
With a CLT there is an immediate charge to tax on that gift
But, if the donor dies within 7 years of making the gift, the CLT remains chargeable on the death of 
the donor. IHT is then payable at 40% on the value of the gift (less any available nil rate band and 
lifetime tax paid). If the taxpayer did survive for at least 3 years, from the date of the gift, any IHT 
charge is reduced by the available taper relief (see below). Any IHT payable on the CLT is paid by the 
donee.
However, If the donor survives more than 7 years from making the gift, the CLT becomes fully 
exempt. It might still have an e
ff
ect on the amount of IHT payable on other gifts (see below).
5. Calculating IHT 
When calculating IHT it is important to work through the three stages methodically:
Stage 1
– the tax on lifetime gifts:
๏
Identify the type of gift – exempt or PET or CLT
๏
Check for any lifetime exemptions and apply the relevant AE
๏
Calculate the amount of nil rate band available, then calculate the tax
Stage 2
– there may be additional tax on these lifetime gifts as a result of the death of the donor. 
This will require the relevant lifetime gifts to have the IHT due recalculated.
Stage 3 
– the death estate. This is a list of all the assets in the estate at the time of death on which 
further IHT may be payable at the death rate of 40%.
STAGE 1: The IHT computation: 
£ 
Value of estate before transfer
X
Less: Value of estate after transfer
(X)
Transfer of value
X
Less: Specific exemptions 
(e.g. spouse/civil partner, small gifts)
(X)
Marriage exemption
(X)
Annual exemptions
(X)
Chargeable amount
X

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