Taxation Readers' Forum: Potentially Exempt Transfer

• Published date: 31 January 2022
• Subject Matter: Tax, Inheritance Tax, Income Tax
• Law Firm: Berg Kaprow Lewis
• Author: Mr Terry Jordan

Writing for Taxation magazine's Readers' Forum, BKL tax consultant Terry Jordan responds to a reader's query about treatment of a payment to a family member for a home purchase.

'I have a question on the tax implications of a gift of money towards the purchase of a home. If this money is coming from a joint bank account of parents to an adult child I presume that this would constitute a potentially exempt transfer (PET) and that the seven-year rule will be applicable.

However, HMRC's Inheritance Tax Manual at IHTM04057 stipulates that a transfer must be made by an 'individual'. If, therefore, one parent dies before seven years, does the gift still qualify as a PET with the surviving parent assuming full responsibility for the original gift which will remain unaffected? Alternatively, does this change the gift from being a PET? If so, what does that mean for the recipient adult child of the original gift?

Also, could readers assist with the tax implications for the parents on giving the money or for the adult child receiving the money in the circumstances where it is agreed that there should be nominal monthly repayments back to the parents but that these payments would probably mean that the full amount would not be paid within the lifetime of both parents. Finally, are there further tax implications if the repayment account is set up in the adult child's name?

I look forward to replies from readers.' Query 19,873 - Confused.

Terry Jordan's reply: Check whether the pre-owned assets charge could apply

'Confused refers to HMRC's Inheritance Tax Manual at IHTM04057 which stipulates that a transfer must be made by an 'individual' to be capable of being a potentially exempt transfer (PET). There is a cross-reference to IHTM04053 which explains that an individual is a human being. Accordingly, in Confused's example, each parent would be making a PET. If either or both were to die within seven years his, her or their PETS would fail and become chargeable. If the nil rate band is exceeded, then...