IHT: lifetime transfers & reliefs
Lifetime transfers are classified as exempt, potentially exempt or immediately chargeable, which determines their inheritance tax treatment.
What "IHT: lifetime transfers & reliefs" covers
- A potentially exempt transfer (PET) is an outright gift to an individual; it becomes fully exempt if the donor survives seven years.
- A chargeable lifetime transfer (CLT), such as a gift into most trusts, is charged at the lifetime rate of 20% on value above the NRB, with a further charge if the donor dies within seven years.
- The annual exemption is £3,000 per tax year, and any unused amount can be carried forward for one year only.
- Further exemptions include small gifts of £250 per recipient per year and gifts that are normal expenditure out of income.
- Gifts in consideration of marriage are exempt up to £5,000 (parent), £2,500 (grandparent or a party) and £1,000 (anyone else).
- Taper relief reduces the tax payable, not the value transferred, on a failed PET where death occurs between three and seven years after the gift.
- A gift with reservation of benefit remains part of the estate for IHT despite the transfer.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For iht: lifetime transfers & reliefs, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Applying taper relief to reduce the value transferred rather than the tax due.
- Overlooking the seven-year cumulation of earlier CLTs when computing tax.
- Missing a gift with reservation, which remains taxable in the donor's estate.
Learn this subtopic in the course
A video lesson, notes and exam-style practice on iht: lifetime transfers & reliefs.
FAQ
Is iht: lifetime transfers & reliefs tested on SQE1?
Yes — iht: lifetime transfers & reliefs is part of the SQE1 Wills & Administration of Estates syllabus (FLK2) and can appear in single best answer questions.
How is iht: lifetime transfers & reliefs examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (potentially exempt transfer (PET), chargeable lifetime transfer (CLT)) helps.