a) transfers to or from most types of trust
b) transfers to or from a close company

CLTs in excess of the donor’s available nil rate band (see below) are subject to an immediate IHT charge of 20%.

It should be noted that any alteration to the unquoted share or loan capital in a close company (or the rights attaching thereto) would be treated as a disposition by the participators and apportioned amongst them in the same way as a deemed transfer of value. Therefore, shareholders in a private limited company could face an immediate IHT charge if new shares are issued for less than their market value to persons who were not previously shareholders or to current shareholders in different proportions to their existing shares. An IHT charge could also arise if the value of existing shares is reduced in any way, such as by limiting voting rights or dividend entitlements.

A CLT will only be subject to an immediate 20% IHT charge if the reduction in the value of the donor’s estate (after allowable deductions such as the £3,000 annual exemption or Business Property Relief) exceeds the donor’s available nil rate band. This will be the nil rate band applicable to the tax year in which the CLT is made (£325,000 for 2009/10) less any other CLTs made within the previous 7 years. Effectively, therefore, property can be passed out of an estate into a trust every 7 years to the value of the current nil rate band. Alternatively, property can be passed out of an estate into a trust every year to a value of one-seventh of the current nil rate band, or any other combination of gifts to a trust that uses up the current nil rate band over 7 years.

A CLT will not be subject to any further IHT charge provided the donor survives for at least 7 years afterwards. If that does not happen the CLT will be added to the estate of the deceased and taxed at 40% if any part remains chargeable after deducting the nil rate band and any other available reliefs. A credit will be allowed for the 20% paid on the lifetime transfer and taper relief may also apply if the donor survived at least 3 years after making the gift, but if the eventual IHT charge turns out to be less than the 20% already paid, no rebate will be given.

Unless a CLT qualifies as an excepted transfer, the donor or transferee is required to complete Form IHT100 together with Form IHT100a within 6 months of the transfer date. General information on how to complete these forms can be found on Form IHT110.

To qualify as an excepted transfer a CLT must pass 2 tests:

a) it must not exceed 80% of the donor’s available nil rate band at the date of transfer; and
b) the value transferred must not exceed the donor’s available nil rate band at the date of transfer

It may not be immediately obvious how a CLT that passes the first test may not pass the second. The reason is that a CLT is taken to be net of any available deductions such as business or agricultural property relief, whilst the value transferred is before deducting relief. Therefore, shares donated to a discretionary trust must be reported on Form IHT100 if their open market value exceeds the donor’s available nil rate band even if they are 100% covered by Business Property Relief and no IHT is payable.

Before deciding whether a CLT is an excepted transfer or not, it is necessary to calculate the donor’s available nil rate band. This will be the IHT nil rate band as at the date of transfer reduced by the amount of any other CLTs made by the donor within the previous 7 years.

There is no need to report PETs unless the donor dies within 7 years of making them. It should be noted that liability for IHT on a failed PET falls to the transferee rather than the estate of the deceased person, although the personal representatives of the transferor may be secondarily liable to a limited extent.

CLTs that are not excepted transfers must be reported within 12 months. Tax on a CLT is due on the following dates:

Date of gift	Due date for payment
6 April to 30 September	30 April the following year
1 October to 5 April	6 months from the end of the month in which the gift is made

Normally the trustees would pay any IHT due on chargeable lifetime transfers. However, the donor may elect to pay the tax instead, in which case the CLT must be grossed-up for valuation purposes. For example, if the CLT is valued at £100,000 and the donor pays the 20% tax, the gross value would be 25% higher. Therefore, tax would be £25,000 on a gross value of £125,000.