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Example 1—simple termination during lifetime

In September 2014 A surrendered his life interest in a fund to the remainderman. The settled property was then valued at £350,000.

A had made a CLT of £50,000 in March 2009, and a PET of £30,000 in April 2013. All annual exemptions have been used.

A died in February 2018.

The surrender of the life interest in September 2014 is a PET which becomes chargeable at 80% of the death rate due to taper relief. The potentially exempt transfer in April 2013 also becomes chargeable.

IHT is payable on the surrender of the life interest on £350,000.

The gross chargeable transfers in the previous seven years of £80,000 (£50,000 + £30,000) reduce the available nil rate band to £245,000 (£325,000 – £80,000).

IHT on £105,000 (£350,000 – £245,000):

£105,000 × 40% × 80% = £33,600.

Example 2—shares held both as life tenant and absolutely (1)

B had a life interest in a fund comprising a 10% holding of shares in XYZ Ltd, an investment company.