Chapter: 2 - Inheritance Tax Mitigation: The Basics

The principle

2.2.1

If a gift (or, technically, a ‘disposition’) is exempt when made, it does not matter, in IHT terms at least, that the donor dies within the following seven years – or even a day later.  Note, incidentally, that to be effective the gift must be ‘perfected’, that is if made by cheque the cheque must have been cleared (Curnock (Curnock’s personal representative) v CIR [2003] SSCD 283 (SpC 365)).  Two of the exemptions mentioned below, those for gifts to spouse/civil partners or gifts to charities, apply whether the gift is made during lifetime or on death.  But most of the exemptions apply only to lifetime gifts: once the prospective donor has died, it is too late.  The first exemption (potentially exempt transfers or PETS) is conditional on survivorship for seven years, whereas the following ten are absolute.

Exemptions should be distinguished from ‘reliefs’, especially for qualifying business or agricultural property (see 2.5): an exempt gift is not a chargeable transfer, whereas a gift of qualifying business or agricultural property is a chargeable transfer, albeit reduced to either 50% or nil.