A little relief 

A transfer of value occurs when a gift is made or when an individual moves property from their estate to another individuals estate. Inheritance tax is charged on transfers of value by an individual during their life time, for example making a gift. Inheritance tax is also charged when transfers of value are made through a will once the individual has died. This is governed by the Inheritance Tax Act (IHTA) 1984.

Section 11 IHTA, provides relief from paying inheritance tax in specific circumstances. If an individual makes a transfer or a gift of money for the purposes of the “maintenance, education, or training” of a child of their own or a child of their spouses, then this will not be deemed to be a transfer of value. This provision also applies to “illegitimate children”. It is important to note that this is only a consideration up until the child turns 18 or once 18 if the child remains in full time education. For the duration of time that these conditions are met, there will be a relief from paying the inheritance tax and so there will be none charged. Although, in the event where a gift or transfer is made for the purposes of benefiting a child once they are 18 or over, unless they are or will be in full time education - inheritance tax will be charged on this amount from this stage.

There is further relief allowed for under section 11 IHTA. An individual will not be charged inheritance tax if the gift or transfer is made in favour of a dependent relative of the individual making the gift or transfer. This relief is limited to a gift or transfer which is considered “reasonable” for the care of the dependent relative. For example, paying for the fees of a carer for the relative or installing a stair lift if needed will likely be considered reasonable and so will be relieved from the charge of inheritance tax. Conversely, paying for a 5-star hotel resort holiday or a new top of the range car would not fall within the “reasonable bracket” and so inheritance tax would be charged on these gifts. Arguably, this “reasonable” category is fair and just as this is a very subjective test and depends entirely on the needs of the relative concerned as something which may be considered reasonable for one person, may not be for another.

Section 11 IHTA, should be used in the instance whereby an individual is making a gift or transfer. If the proportion of the estate is being used towards the beneficiary’s care or maintenance, then section 11 will apply and there will be no inheritance tax charged on this amount.

Should you have any questions about the application of Section 11 IHTA relief for your clients, Countrywide Tax & Trust Corporation Ltd’s Estate Planning Helpline can assist.

Written by Celtic Murray, 21 years old. Miss Coventry 2019/20. BPP Legal Practice Course student. (22/11/2019)

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