Section B: Case 2 - Eleanor Vance

Scenario: Eleanor Vance, a wealthy agricultural landowner, made several lifetime transfers before her death on 12 November 2023. On 15 August 2021, she transferred £450,000 of cash into a discretionary trust. Eleanor paid the lifetime Inheritance Tax (IHT) arising on this transfer. She had made no previous lifetime gifts.

Question: On 10 May 2022, Eleanor gave her son a cash gift of £100,000.

How is this gift treated for IHT purposes upon Eleanor's death in November 2023?

The gift to the son in May 2022 was a Potentially Exempt Transfer (PET). Because Eleanor died within 7 years (in Nov 2023), it becomes a chargeable transfer. Value of PET = £100,000. Less: 2022/23 Annual Exemption = £3,000 (the 21/22 AE was used on the CLT). Chargeable PET = £97,000. The Nil Rate Band (£325,000) at death is applied to gifts in chronological order. The CLT in August 2021 had a gross value of £473,750 (£444,000 net transfer + £29,750 tax paid by donor). This completely exhausted the £325,000 NRB. Therefore, the entire £97,000 PET is taxed at 40% (death rate). No taper relief applies as death was within 3 years.