Terminology explained
Quick Succession Relief (QSR)
Quick Succession Relief is a measure under section 141 of the Inheritance Tax Act 1984 designed to prevent double taxation of the same assets within five years due to inheritance. It offers a reduction in inheritance tax on a deceased's estate by considering the tax paid on a previous transfer, the benefit received by the deceased from that transfer, and the time elapsed between the transfer and death. Relief ranges from 100% if death occurs within one year of the first, to 20% within five years.
Successive Transfers
Successive Transfers refer to the consecutive passing of assets through multiple estates, typically when assets are inherited by beneficiaries who themselves die shortly thereafter. This situation can potentially lead to multiple incidences of Inheritance Tax (IHT) within a short period. Planning for Successive Transfers can involve strategies like setting up trusts or taking advantage of reliefs such as Quick Succession Relief to mitigate the IHT burden across sequential inheritances.
Replacement Relief
This relief concerns the replacement of business properties. If a replacement property is not acquired before the individual's death, any potential business property relief is forfeited. The relief for any replacements made within five years cannot exceed the amount that would have been available had no replacement occurred.
Scenario background
Mary
George
Mary and George are mother and son.
Mary owns £200k worth of assets which are potentially eligible for Business Relief (BR).
Scenario 1
- Mary dies leaving all of her potentially BR qualifying assets to George.
- Mary dies having owned the potentially BR qualifying assets for just one year.
- George subsequently dies 14 months later and leaves all his assets to his niece.
Mary’s Inheritance Tax (IHT) position
Mary was not eligible for BR due to not satisfying the holding period to qualify for BR.
George’s Inheritance Tax (IHT) position
Tax Payable:
£16,000 - 80,000*
George is also not eligible for BR, due to only having owned the BR assets for 14 months, and is not eligible for the ‘successive transfers’ BR exemption as the previous transfer did also not qualify for BR.
However, George may qualify for Quick Succession Relief (QSR) given he died within five years of Mary, and left an asset to his niece that had recently been subject to IHT.*
*The amount of QSR available will depend on Mary and George’s broader IHT position but could be up to £64,000 (being 80% of the £80k previously paid).
Scenario 2
- Mary dies leaving all of her potentially BR qualifying assets to George.
- Mary dies having owned the potentially BR qualifying assets for over two years.
- George subsequently dies 14 months later and leaves all his assets to his niece.
Mary’s Inheritance Tax (IHT) position
Mary was eligible for BR as she satisfied the two year holding period for BR purposes.
George’s Inheritance Tax (IHT) position
George is also eligible for BR. Although George did not qualify from his own time period of holding the assets, the two transfers fall under the successive transfers legislation and therefore BR is available.
Takeaway
In this example a tax saving of £80,000 is achieved by virtue of BR assets and their retention by George until his death. Careful planning can therefore be beneficial from a tax perspective for both the timing of the initial investment and retention of such assets.
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Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.
Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.
This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.
Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
