Chargeable Lifetime Transfers

IHT Treatment of Chargeable Lifetime Transfers


When a gift or Transfer of value is made to a Trust that is considered by HMRC to be a "Chargeable Lifetime Transfer" inheritance tax may be payable IMMEDIATELY, depending on the cumulative value of previous Chargeable Lifetime Transfers made by the transferor during the last 7 years.


If the cumulative amount transferred into CLT's over the previous 7 years exceeds the current Nil Rate Band (£325k currently), IHT will be levied at a rate of 20% (half the IHT 40% rate). In addition, there is a "Periodic" charge every 10 years of 6% of the value of the Trust fund less the Nil Rate Band.


Trust "Simplification" March 2006


Prior to March 2006, most lifetime transfers to Trusts were deemed to be Potentially Exempt Transfers. This meant that in most cases the person making the gift to the Trust only needed to survive for the next 7 years and the entire settlement would be totally free of IHT. However, since Gordon Brown's radical shake-up on Trusts on 22nd March 2006 most lifetime transfers to nearly all Trusts were considered to be "Chargeable Lifetime Transfers", which meant that potentially, IHT became payable immediately!

As if that wasn't bad enough news, the new legislation meant that potentially, existing Trusts established prior to 22nd March 2006 that had qualified as Potentially Exempt Transfers, under certain circumstances, like having a change of beneficiary, these Trusts too could also lose their PET status and effectively become Chargeable Lifetime Transfers.


Gordon Brown felt claimed that his radical overhaul of Trusts in March 2006 was more of a "simplification" than an outright "attack" on the tax treatment for the many different types of Trust. To a degree Gordon Brown did achieve a goal of simplification, but the ramifications of the reform broadly meant that the Government had achieved a goal that would enable them to gain more tax revenue from Trusts than had managed in the past. As well as the headline "simplification" of Trusts, under the old rules HMRC had no idea what Trusts had been in existence so under the new regime whenever a new CLT type trust was established, there was introduced the requirement for the completion of an HMRC Form 100.


Potentially Exempt Transfers or Chargeable Lifetime Transfers


Whilst there are many different types of Trust, the main categories of Trust are:


  • Discretionary Trusts
  • Interest in Posession Trusts
  • Accumulation and Maintenance Trusts
  • Bare Trusts


Whereas prior to 22nd March 2006 only transfers to "Discretionary" type Trusts were considered to be taxed as Chargeable Lifetime transfers, with the remaining three categories Potentially Exempt Transfers, after March 2006, the only Trust type that retained it's PET status was the least flexible Trust of the lot, the Bare Trust.


find an adviser