During the current year, the Jordan family trust, an inter vivos trust, has business income of $220,000. Of this amount, $50,000 is retained in the trust with a joint election….
In May 2007, Keith gave a holiday cottage he owned to his daughter.
In May 2007, Keith gave a holiday cottage he owned to his daughter. The cottage was worth £206,000. There was no inheritance tax on the gift at the time because £6,000 was exempt (using two £3,000 a year exemptions) and the rest counted as a potentially exempt transfer (PET). Keith died in August 2009, leaving an estate valued at £310,000. On its own the estate came to less than the nil-rate band for 2009–10 of £325,000 but, to work out if tax is due, the estate must be added to any taxable gifts made in the last seven years including failed PETs. Keith’s running total comes to £200,000 + £325,000 = £525,000. The PET has used up £200,000 of the nil-rate band leaving only £125,000 to set against the estate. This means £310,000 – £125,000 = £185,000 of the estate is taxable and the tax charge is 40% × £185,000 = £74,000.