3): Basic IHT Calculation

Question 1

[Step 1 – Transfer Type] What are the three types of transfers in IHT?

Answer 1

Potentially exempt transfer

Lifetime chargeable transfer

Death transfer

Question 2

[Step 2 – Value] How is the value of the transfer calculated?

Answer 2

Determine the value
transferred by the chargeable transfer (or estate on death).

Question 3

[Step 3 – Exemptions] What exemptions can be applied to reduce the transfer value?

Answer 3

Transfers between spouses/civil partners

Annual exemption

Gifts to charities, political parties, national purposes

Small gifts (e.g. wedding, engagement presents)

Question 4

[Step 4 – Reliefs] What reliefs can further reduce the transfer value?

Answer 4

Business property relief

Relevant business property

Related property

Agricultural property relief

Question 5

[Step 5 – Cumulation] Why is cumulation relevant and what does it involve?

Answer 5

Add up the value of chargeable transfers made in the 7 years before the current transfer.

Prior transfers reduce the available nil rate band.

Question 6

[Step 6 – Nil Rate Band] What is the current nil rate band and its relevance?

Answer 6

£325,000 over 7 years is taxed at 0%

Residence nil rate band: £175,000 for property passed to direct descendants

Question 7

[Step 7 – Tax Rate] How is the IHT rate applied?

Answer 7

0% within the nil rate band

40% on any excess (subject to taper relief)

Question 8

[Step 8 – Taper Relief] When does taper relief apply and how much?

Answer 8

Applies to lifetime transfers made 3–7 years before death:

3–4 years: 80%

4–5 years: 60%

5–6 years: 40%

6–7 years: 20%

Question 9

[Step 9 – Liability] Who is liable for the IHT?

Answer 9

PET: Trustees and trust property

Lifetime chargeable transfer:

Transferor

Death transfer: Personal
Representatives (PRs) and estate residue