IHTM24180 - Lifetime transfers: Failure to satisfy the additional conditions
Where the conditions (IHTM24173) are satisfied for only part of the gifted property, you should reduce a proportionate part of the value transferred to calculate the relief due, IHTA84/S124A (5). Where the conditions are not satisfied at all, the consequences depend on whether the transfer is a failed PET (IHTM04057) or an immediately chargeable transfer (IHTM04067).
Failed PET
When the conditions are not satisfied, the effect of IHTA84/S124A (1) is that in working out the tax payable on the transfer and establishing the transferor’s cumulative total, the value transferred by the PET is ascertained on the basis that agricultural relief is not due.
Consequently, IHTA84/S114 (1) does not mean that business relief cannot be deducted instead, if the conditions for that relief are satisfied. This means that the transfer must have qualified for business relief at the time it was made and the additional conditions (IHTM25121) relevant to business relief are satisfied at the death of the transferor. This may apply where the gift was of a farming business, including the farmland, and the transferee
- retains the land, but changes the business carried on to something other than farming, or
- sells the business including the land and uses the whole of the proceeds to purchase a non-farming business.
Immediately chargeable transfer
When the conditions are not satisfied, the effect of IHTA84/S124A (2) is that the additional tax chargeable by reason of the transferor’s death is calculated on the basis that agricultural relief is not due. Consequently,
- the additional tax payable on death is the difference between the tax at death rates (after taper relief (IHTM14611), if due) on the unreduced value and the tax paid at lifetime rates on the reduced value, but
- the cumulative total established at the time the transfer was made is not affected, it remains as it was, after deduction of relief.
Because the value transferred at the time of transfer has the benefit of agricultural relief, IHTA84/S114 (1) means business relief cannot apply as an alternative.
You should consider whether the associated operation provisions apply in any case involving sales of agricultural property which was the subject of an immediately chargeable transfer.