Inheritance tax

Question 1

When does it arise

Answer 1

During their life when doing any transfers

Death estate

Question 2

Who is liable to IHT

Answer 2

Individuals and trust

Taxed on all gifts of wealth not from income (income = paying school fees out of pension)

Question 3

Transfers of value

Answer 3

Any gift
No gratuitous intent - poor business decision (underselling my mistake)
Diminution in value = fall in value to donor not amount the other gained

Question 4

Exemptions

Answer 4

Any gifts between spouse

For lifetime transfers only:
Annual exemption £3k can c/f only 1 year (need to do CY first then b/c)
Marriage - parents =£5k, grandparents £2.5k, £1k anyone else
Small gifts £250 per donee per year
Any expenditure from someone’s income / pension

Question 5

Types of lifetime transfers

Answer 5

PET
Gift between individuals
Exempt when gift is made
Becomes chargeable to death tax if within 7 years

CLT
Any other transfers (gifts to trust)
Chargeable to lifetime tax straight away
Chargeable to death tax as well if within 7 years

Question 6

Life time tax proforma

Answer 6

Gift
(AE)
(B/F AE)=
Net gift
(Any remaining NRB 325,000)

Tax @20%(donee paying) or 25%(donor paying)

If tax paid by donor need to add gift plus exemptions and tax (25%) for GCT on lifetime

Question 7

Death tax on lifetime transfers proforma

Answer 7

Gross CLT/PET
(Nil rate band remaining)
Tax @40%
(Taper relief on years from tax tables)
(Any tax incurred already on lifetime transfer for that asset)
=
Death tax due

Question 8

Death estate

Answer 8

Group together all remaining assets and liabilities.

Transfer of nil rate band from deceased partner is done as a %of unused at their time and then that % of current 325k is used. Same for the resident nil rate band.

Resident nil rate band only for direct descendant