Tx notes fa22 Final

Compute the amount of IHT payable during Joe’s lifetime and upon his death.

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180
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8. IHT Planning 
As the Chargeable Estate of the taxpayer is charged at 40% above the nil rate band it is sensible for 
a taxpayer to think carefully about succession planning to minimise what may be a significant IHT 
liability arising upon his or her death. Thus, making lifetime transfers is the easiest way an individual 
may reduce the IHT liability that would otherwise arise upon death. This of course assumes that the 
individual has both the capacity and willingness to make such gifts during lifetime.
If an individual makes regular lifetime gifts to others out of his income these transfers will be exempt 
as normal expenditure out of income. In addition, the taxpayer has available each year an annual 
exemption of £3,000 and may also take advantage of the marriage exemption.
Other gifts to individuals will be PET’s:
๏
no immediate IHT liability will arise, and these transfers will only become chargeable if the 
donor dies within 7 years of having made them
๏
if the individual dies within 7 years the value of the transfer is 
“
frozen” at the time of the 
transfer. It is therefore beneficial to gift in lifetime those assets that are likely to increase in 
value over time
๏
if the donor survives for at least 3 years then any IHT payable thereon is reduced by taper relief
When gifts are made in lifetime, however the taxpayer must also consider any CGT implications of 
those gifts. A chargeable gain arises on a chargeable disposal of a chargeable asset by a chargeable 
person. A gift is a chargeable disposal with a gain being computed based on the market value of the 
asset gifted. If the asset is of course an exempt asset, such as cash, a car, or an exempt chattel, 
then no gain will arise.
If the asset is a chargeable asset, then there will still be no CGT liability if the net gains for a tax year 
are covered by the AEA of the taxpayer. If gains would exceed the AEA then reliefs may be available 
to exempt or defer the gains from chargeability, for example the availability of PPR relief to exempt a 
gain or gift relief to defer a gain
These planning issues are further explored in Chapter 26.
In choosing which assets should go to which beneficiary upon death it is also important to ensure 
that the taxpayer takes advantage, wherever possible of exempt transfers to a spouse or civil partner 
and makes best use of the residence nil rate band by ensuring that a main residence, if not gifted to 
a spouse/civil partner is gifted to a direct descendant. rather than a beneficiary for whom the 
residence nil rate band is not available.