Court sets aside liability for inheritance tax

The executors of a man's will have succeeded in removing the need for inheritance tax to be paid on some of the assets he transferred to other people a few years before he died.

The gifts in question were potentially exempt transfers (PETs) - so called because if the person making the donation lives for another seven years then the recipient does not have to pay inheritance tax. However, if the donor dies within those seven years then there will be a tax charge.

In this case, the executors of the will submitted that the man would never have made the transfers if he had known that there was no chance of him surviving for seven years. The court was told that the transfers were made in April 2003 and February 2004. The man was then diagnosed as suffering from lung cancer and died in 2005.

The court ruled that the first transfer made in 2003 could not be set aside because the man was not suffering from his illness at the time and therefore it could not be said that he had made a mistake in agreeing to the transfer.

However, the situation had changed by the following year. Had he known that he was then suffering from such a serious form of cancer he would have realised there was little chance of him surviving seven years and so he would not have made the transfer. This second transfer could therefore be set aside.