IHT, CLT, PET....

[UnclePhilip]

I have found IHT to be a peculiar tax in that it seemed very complicated, then studying it and it seemed to get simpler, the studying it more and it became ever more complicated....

So, we're about to make a chargeable lifetime transfer (CLT) of a house worth £270,000; a transfer by way of gift into a discretionary trust.

We are also about to give £25,000 to each of our two sons, for house purchase, they become PETs.

I believe that it is better for IHT purposes to make the two cash gifts before the CLT, due to the way CLTs get added to PETs if done the other way round.

However, my head is spinning and I can't remember/understand the tax law reasoning.

Can someone with knowledge help out here, please?

Uncle

[genou]

I have found IHT to be a peculiar tax in that it seemed very complicated, then studying it and it seemed to get simpler, the studying it more and it became ever more complicated....

So, we're about to make a chargeable lifetime transfer (CLT) of a house worth £270,000; a transfer by way of gift into a discretionary trust.

We are also about to give £25,000 to each of our two sons, for house purchase, they become PETs.

I believe that it is better for IHT purposes to make the two cash gifts before the CLT, due to the way CLTs get added to PETs if done the other way round.

However, my head is spinning and I can't remember/understand the tax law reasoning.

Can someone with knowledge help out here, please?

Uncle

I think you have it right. CLT before PET will mean the 14 year rule will come into play. To be avoided for preference, but the 14 year rule will only come into play if the PET fails.

[UnclePhilip]

I have found IHT to be a peculiar tax in that it seemed very complicated, then studying it and it seemed to get simpler, the studying it more and it became ever more complicated....

So, we're about to make a chargeable lifetime transfer (CLT) of a house worth £270,000; a transfer by way of gift into a discretionary trust.

We are also about to give £25,000 to each of our two sons, for house purchase, they become PETs.

I believe that it is better for IHT purposes to make the two cash gifts before the CLT, due to the way CLTs get added to PETs if done the other way round.

However, my head is spinning and I can't remember/understand the tax law reasoning.

Can someone with knowledge help out here, please?

Uncle

I think you have it right. CLT before PET will mean the 14 year rule will come into play. To be avoided for preference, but the 14 year rule will only come into play if the PET fails.

Thank you for this genou; helps to assuage the gnawing feeling that I'm losing the plot....

These complicated and interweaving IHT rules do produce some strange results. As we're approaching the end of the tax year:

(i) I need to transfer the house into trust before 5th April, to use the two CGT personal allowances that will be halved on 6th April

(ii) Therefore the PETs should happen before then, but....

(iii) If everything happens before 5th April, this CLT will use up our two £3,000 exemptions for 2022/23, and we're unlikely to use them in tax year 2023/24. But then....

(iv) Unless our gifting exceeds our NRBs, the order of CLTs and PETs doesn't really matter, does it? And....

(v) Oddly (at least to me) the tapering relief on gifts between 3 and 7 years before death only seems to apply to transfers which exceed the NRB.

So, I'm coming round to the view that a lot of all this doesn't apply to our situation, and that we should CLT before 5th April, and delay at least £6,000 of our PETs until 6th April.

My brain hurts....

Uncle