The Brand Financial Training team provide a succinct look at Quick Succession Relief (QSR), which is mainly tested within the AF1 written exam but could also show up in R03, R06 and AF5 as well.
Quick succession relief is one of those formulas that needs to be revised and committed to memory.
Firstly though, what is QSR?
QSR is a relief under s141 of the Inheritance Tax Act 1984. It is intended to alleviate cases where the same assets in an estate would otherwise be subject to Inheritance Tax (IHT) twice within a relatively short period of time (5 years).
The relief is given by reducing the tax payable on the death estate and is calcualted with reference to the:
- amount of tax on the earlier chargeable trasnfer
- benefit to the deceased on that transfer and
- period of time between that transfer and the death
It essentially allows a percetage of the tax paid on the first death to be credited against the IHT paid on the second death. The percentages are:
- 100% if death occurs within 1 year of the first death
- 80% if death occurs between 1 and 2 years
- 60% if death occurrs between 2 and 3 years
- 40% if death occurs between 3 and 4 years
- 20% if death occurs within 4 and 5 years
Let’s look at an example:
Joe dies leaving an estate of £350,000 to Amanda. IHT was paid of £10,000. Amanda dies 3.5 years later.
On Joe’s death, Amanda’s estate is increased by £340,000.
The amount of tax eligible for tax relief is worked out as:
- The gross estate minus tax – £340,000
- Divided by the gross estate of £350,000
- Multiplied by the tax paid of £10,000
£340,000/£350,000 x £10,000 = £9,714
As Amanda died 3.5 years after Joe the percentage used is 40%
£9,714 x 40% = £3,885
IHT on Amanda’s estate is reduced by £3,885.
You should note that there can be no QSR where the earlier transfer to the deceased was:
- chargeable but tax was not paid because it was below the threshold
- more than 5 years before the death
Gina died in June 2017 leaving an estate of £700,000. In her Will, the whole estate passes equally to her spouse, Jim and their adult child.
Half the estate was spouse exempt. Tax of £10,000 was paid on the chargeable transfer of the other half.
Jim dies in 2020. There can be no QSR on his death by reference to the tax paid on Gina’s death because the transfer to Jim was an exempt transfer.
Claims for QSR are made on the Inheritnace Tax account form – IHT400 Calculation.
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