ACCA ATX ^UK Syllabus A3. Inheritance Tax - Fall in value of lifetime gifts - Notes ^{4 / 7}

Value of a gift

The chargeable amount of a lifetime gift (CLT and PET) is calculated and fixed at the time of gift. 

If the gift becomes chargeable on death (donor dies within 7 years of making the gift):
1) An increase in value of the gift will be ignored
2) A decrease in value of the gift will get relief for the fall in value

Condition for the fall in value claim

The asset must still be owned by the done at the date of death, or if it has been sold, it must have been sold in an arms length transaction.

Note

When applying the 7 year accumulation principle for nil rate band availability, the value that will be used for this gift is the original gross value, not the value after the relief has been given.

Illustration

Preeti’s aunt died in August 2024.

On 1 May 2023 Preeti’s aunt gave her a property worth £92,000 but now it is only worth £40,000. 

Preeti’s aunt made other gifts, so no annual exemptions or nil rate band was available for this gift.

What is the IHT payable for this gift?

Solution

Original transfer value £92,000
Fall in value claim (£52,000)
Value after claim £40,000

IHT: 40% * £40,000 = £16,000