Chargeable transfers business property and Nelson Dance

Since March 2006, when almost every gift into trust became an immediately chargeable transfer for IHT purposes, it has been quite hard to identify circumstances where a client might be persuaded to make a settlement. There is no doubt that the fearsome complexity of the calculations under the ‘relevant property regime’. There is also the need to communicate with the Capital Taxes Office at the time that the settlement is made, instead of waiting and hopefully discovering after seven years that such a procedure will not be needed. These factors are mightily discouraging to the lay client. However, the decision by the Special Commissioner in Nelson Dance Family Trustees v HMRC (2008) SpC 682 has highlighted one advantage of making an immediately chargeable lifetime transfer rather than a potentially exempt transfer (PET). This is the preservation of the benefit of the nil rate band on the death within seven years of the settlor for the benefit of his free estate, even if the business, or agricultural, property initially put into the settlement ceases to qualify as such in the hands of the trustees. Previous articles in Trusts & Estates have discussed this effect particularly in the context of agricultural or business property disposed of by the trustees, without being replaced.