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Inheritance Tax Notes

LPC Law Notes > Private Client Notes

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Wills & Administration of Estates LPC Exam Revision Inheritance Tax When is IT Payable?
All transfers of value are subject to IT unless it is exempt. IH can be paid during a lifetime as well as after death. There are three kinds of chargeable transfer:

1. Potentially Exempt Transfers ('PET') A PET is made by a person during their lifetime to another person. No IT is payable at the time of the PET nor if the transferor survives for 7 years after the PET. IT is payable if the transferor dies within 7 years of the PET at a rate of 40% above the threshold (see below).

2. Lifetime Chargeable Transfers ('LCT') A LCT is a transfer to another person into a trust. IT is payable at the time of the LCT at 20% above the threshold. If the transferor survives 7 years after the LCT the no further tax charges are made. If the transferor dies within 7 years of the LCT then the tax liability is reassessed at the death rate of 40%.

3. Death When a person dies then the person's estate will be taxed at 40% above the threshold. The threshold is PS325,000. Everything below this figure is not taxed; everything above this figure is taxed as detailed above. IT can be reduced on death to 36% if a person leaves 10% of their net estate to charity.

Cumulative Total & Thresholds HMRC considers all IT transfers made the in 7 years before death. Cumulative Total = Total Chargeable Value of all Chargeable Transfers made in the past 7 years.

Work out the cumulative total before working out the threshold. Threshold = PS325,000 - Cumulative Total Prior PET/LCT

After PET?



IT Payable?

Cumulative Total : 0

Cumulative Total

Cumulative Total =

- Cumulative Total

Below Threshold: 0%

(PET only taxed if fails)

LCT total

Exemptions & Relief LCTs & Failed PETs


Above Threshold: 40%

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