IHT cumulation - failed PETs and CLTs

Hi,

I am struggling to get my head around the lookback rule for failed PETs and CLTs. I don't understand what triggers a further 7 year lookback and whether it applies to PETs and CLTs? It would be great if someone is able to help explain this.

Many thanks...

Comments

  • Is this Pru article useful? Googling 14 year rule will bring up a few more explanations.

    "The 14 year rule applies where there are CLTs in the 7 years before a PET which has “failed”. This rule is there to ensure that gifts which become chargeable are taxed appropriately"

    https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/gifting-and-inheritance-tax/#:~:text=The 14 year rule applies,become chargeable are taxed appropriately.

  • My understanding:
    1. When making a CLT the full IHT NRB becomes available again after 7 years.
    2. If a CLT has been made less than 7 years previously then the value of that earlier gift (less gift allowances) reduces the NRB available when claulating the lifetime IHT on a subsequent CLT.
    3. The initial CLT would also have an impact on the calucation of the periodic charges for a subsequent CLT, if less than 7 years separaed them.
    4. If the gift made previously was a PET rather than a CLT then it has no impact on the calculation of lifetime IHT on the subsequent CLT because a PET only becomes chargeable upon death (within 7 years of it being made).
    5. When a PET becomes chargeable you muct look back 7 years from the date it was made to see if there was a prior CLT.
    6. In these circumstances a CLT made less than 7 years prior to the PET would reduce the IHT NRB when assessing the PET for IHT at death.
    7. Taper relief may reduce the IHT liability on the failed PET.
    8. When the deceased has made a CLT and a subsequent (failed) PET it is only the value of the PET (and not the CLT) that affects the NRB when assessing the estate for IHT.

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