IHTM22080 | Quantifying increase at deceased's estate: PQSR

The basic situation when potential quick succession relief (PQSR) occurs is when

• lifetime gift by A to B

• death of B within the five year quick succession relief (QSR) period

• later death of A within seven years of the gift, on which tax is then payable.

As the extent of the PQSR depends on the actual tax paid, you must wait to see what is paid on the transferor’s death before giving any PQSR on your deceased’s death, as transferee. If tax is then paid, you may give QSR (IHTM22041) in the normal way. Though the tax paid on the transfer is triggered by the transferor’s death, it is due in respect of the earlier gift and treated as having been paid at that time.

Example

Erica gave Clive £400,000 cash in May 2009 (no annual exemption was available).

Clive died in August 2011 leaving an estate of £800,000, which had been increased by the gift from Erica.

Erica died in April 2012. As she died within seven years of making the gift to Clive Inheritance Tax (IHT) is now payable on the gift and QSR is due on Clive’s estate.

The IHT payable on Erica’s death is (£400,000 - £325,000) × 40% = £30,000

The increase to Clive’s estate from the gift is £400,000 - £30,000 = £370,000

The QSR due on Clive’s estate is

(£370,000 ÷ £400,000) × £30,000 × 60% = £16,650

Refer to Technical for directions if the transferor’s Will provides for the tax on the gift to be paid out of their estate, or the deceased leaves their estate (or part of it) to the transferor.