4. IHT Flashcards
What are the IHT rates? (3) and when is payment due?
40% on estate above NRB
Reduced to 36% if 10%+ of net estate left to charity
20% on lifetime transfers into most trusts
Payment due 6 months from end of month of death
What is the RNRB threshold and conditions? (3)
Lower of value of share in property or £175k
Available when leaving property, which was their residence, to linear descendant(s)
Only available on estates up to £2m. Reduces by £1 for every £2 over £2m
What are the conditions for carrying forward the RNRB? (3)
Unused RNRB can be passed on to surviving spouse
First spouse to die does not need to have owned a property, full £175k will get passed on
If first death was before April 2017, 100% of their RNRB can be carried forward
What is the downsizing addition for RNRB?
If former owner sold/downsized home after July 2015, and linear descendants inherit some of the estate, the RNRB will apply.
Value equal to RNRB that would have applied on former home, or the amount of estate left to lineal descendants if lower.
What are the conditions for carrying forward the NRB?
The % of unused NRB on first death is applied to NRB at second death - spouses only
How is property owned by joint tenancy work for IHT?
100% of property legal ownership passes to surviving owner, however 50% of value is deemed to belong to the deceased for IHT purposes, so is included in estate.
N/A if joint owner is spouse, as 100% will transfer anyway
How is property owned as tenants in common work for IHT?
Value of deceased’s share in property is equal to their agreed legal ownership % less a discount to recognise difficulty selling property still owned by someone else.
Discount % is 15% if owned 50/50. Discount is higher if minority owned, or lower if majority owned
What are the main exempt transfers for IHT? (8)
- Spouses (limited to £325k if made to non-dom spouse)
- Small gifts (£250 p.a to each donee)
- Annual exemption (£3k p.a total gifts by donor - can be carried forward 1 year)
- Donations to charity/political party/museums/libraries etc
- Wedding gifts (limits in tax table)
- Regular gifts (no limit):
- made out of income
- part of regular pattern of expenditure
- doesn’t affect donor’s standard of living
- Family maintenance
- Death in service of military/emergency services
What are gifts with reservation and how are they treated for IHT?
Gifts made but donor continues to benefit e.g gift house but continue to live in it rent free
The value is added back to the estate as if the gift never happened
What are Chargeable Lifetime Transfers and how are they treated for IHT? When is payment due?
Lifetime gifts to companies and certain trusts
Immediate IHT of 20% is payable if the CLT brings the cumulative CLTs from previous 7 years over the NRB at the time
Further 20% becomes payable if death within 7 years, subject to taper relief
CLTs from >7yrs before death are not subject to IHT, but reduces the NRB available on a subsequent PET
Transfers 6 April - Sep: 30 April following year
Transfers Oct - 5 April: 6 months of end of month of transfer
Key features of Quick Succession Relief?
IHT relief if beneficiary dies within 5 years of receiving inheritance.
Yrs after inheritance % Relief
<1 100%
1-2 80%
2-3 60%
3-4 40%
4-5 20%
What are the conditions (4) and rates (3) of Business Relief for IHT
IHT relief on qualifying business assets.
Conditions:
- Must have owned asset for 2+ years
- Not available on assets not used for 2+ years
- Not available on assets not needed in the future or held for sale
- Not available for securities/stocks/shares/land & buildings
Unincorporated business / Ltd / AIM-listed: 100%
Controlling shareholding in PLC: 50%
Land/building/machinery used by a company/partnership that the donor controls: 50%
What are the rates (2) and conditions (2) of Agricultural Relief?
IHT relief on UK farmland/woodland incl buildings.
Must have been farmed for 2+ years or owned for 7+.
100% if donor had vacant possession or could do within 24 months, 50% if not.
What is the the rate and condition of Woodland Relief?
100% IHT relief on woodland actively managed as a business.
What are the key features of Pre-owned assets tax (POAT)?
- General idea
- Assets in scope
- People in scope
- Threshold
- Valuation
- Avoidance
- Exclusions (6)
Income tax charge if donor still benefits from asset
Assets in scope: land, chattels, intangible property
All UK residents - worldwide assets except non-Doms (UK assets only)
No liability if total income is <£5k
Value = cash value of benefit e.g HMRC interest rate x open market value of asset. Property must be valued every 5 years
Can avoid by electing to include asset in estate (eg if under NRB)
Exclusions: spouses, arms length sale @ market value, family maintenance, gift covered by annual exemption or small gifts exemption, covered by gifts with reservation
