IHT – gifting a cheque

It is one of the cardinal features of IHT that if a donor makes a gift, which is a Potentially Exempt Transfer, it will be completely exempt from IHT if the donor survives for seven years.The key question will often be, when does the seven year period start and therefore end? The answer will depend upon the nature of the property being gifted, and the formalities required to transfer ownership. The Special Commissioners had to consider this question in relation to a gift of a cheque in Curnock v IRC SpC 365 (noted 2003 STI 1052).

The cheque, which was the subject matter of the appeal, was drawn on 21 December 2001 and paid into the donee’s account on the same day. It was cleared on 27 December 2001. Unfortunately, the donor died 22 December 2001. The Special Commissioner held, following the decisions in Re Owen 1949 1AER 901 and Re Swinburne (1926) Ch 38, that a gift of a cheque was not completed until it was cleared. Consequently, the gift was not effective. The Commissioner also held that the amount of the cheque could not be regarded as a debt, deductible from the estate chargeable to IHT, because it was not a liability incurred for money or money’s worth as required by Section 5 (5) of the IHT Act 1984.