Quick Succession Relief (QSR) for inheritance tax (IHT) is something that often comes up in professional exams; one of those formulas you commit to memory for an exam and then probably forget instantly. However, its use in practice is becoming more commonplace and here is why.

The Basics

QSR is designed to reduce the burden of IHT where an estate taxable on death includes assets received within the previous five years under an earlier transfer on which tax was (or becomes) payable. The QSR is given on the second death, where the value of a person's estate has increased by a chargeable transfer made within the previous five years and provides relief against two charges to IHT. The property subject to the first chargeable transfer does not have to be part of the second estate for the relief to apply. 

The Formula

QSR is given by reducing the tax payable on the second transfer. The reduction is calculated by:

Percentage x (Gross Chargeable first transfer – Tax on first transfer) x Tax on First Transfer

                                                                Gross Chargeable first transfer

The percentage relief available depends on the number of years between transfer and death. It ranges from 100% if the two transfers occurred with one year to 20% if more than four years but less than five years have passed between the two transfers.

An Example

Typically it arises in a deceased estate, which includes inherited property.

For example, John died in March 2018 leaving an estate of £500,000. By Will his whole estate passed to his partner Susan. Tax of £70,000 was paid (£500,000 less nil rate band of £325,000 @ 40%). Susan dies in January 2019, leaving all of her £800,000 estate to her niece, which would have an IHT liability of £190,000 (£800,000 - £325,000 @ 40%).

IHT was paid on John’s death, and became payable again on Susan’s death. However, Susan died within five years of inheriting an interest in the estate and QSR reduces the tax payable on Susan’s death as follows:

100% x (£500,000 – £70,000) x £70,000 = £60,200

                                £500,000

The IHT liability on Susan’s estate is instead £129,800 (£190,000 less £60,200).

QSR is also useful where the deceased received a lifetime gift from another person (a potentially exempt transfer), which becomes taxable because that other person has died within seven years of the gift.

Why is it relevant to me?

Last year, £5.4 billion IHT was paid, which is a 3% increase on 2017-18, and the number of estates liable to IHT is rising year on year. It is therefore not surprising that there has been an increase in the number of estates qualifying for QSR.

It is important to seek professional advice before dealing with an estate, which may be subject to IHT, to ensure you are claiming all the available reliefs. Should you require any further information on QSR or need any estate planning or inheritance tax advice please do not hesitate to contact a member of our team.