Burden and incidence of Inheritance Tax (Grants of representation)- FS

Question 1

What is the difference between liability for and burden of inheritance tax?

Answer 1

• Liability: Legal responsibility to pay the tax, usually on personal representatives (PRs).
• Burden: The financial source from which tax is actually paid, typically the residuary estate or a beneficiary where a gift is left subject to tax.

Question 2

Definition: Personal Representative’s Liability for Inheritance Tax

Answer 2

PRs are personally liable to HMRC for IHT on all non-settlement property:

• Property passing under a will or intestacy
• Property beneficially owned by the deceased that passes automatically (e.g. jointly owned assets passing by survivorship)

Question 3

List: Property Types That Trigger PR Liability for IHT

Answer 3

1. Property vested in PRs under will/intestacy
2. Property not in a settlement, but beneficially owned by the deceased immediately before death
3. Property jointly owned and passed by survivorship
4. Gifts with reserved benefit
5. PETs (Potentially Exempt Transfers) becoming chargeable (after 7 year

Question 4

When can PRs become liable for tax on lifetime transfers made by the deceased?

Answer 4

• Where the deceased made a gift with reservation of benefit
• Where a person dies within 7 years of making a transfer that is PET the transfer then becomes chargeable IHT beciomes paybale on it.

The recieptent is liable for IHT in both these cases but if the recipient fails to pay IHT within 12 months of death, then PR are liable

Question 5

What limits the extent of a personal representative’s liability for inheritance tax?

Answer 5

The liability of PRs is limited to the value of the estate assets vested in them. They are not liable beyond what they receive under the will or intestacy.

Question 6

Is a beneficiary ever liable to pay inheritance tax on a gift?

Answer 6

Yes. A beneficiary is legally liable for IHT on the property received, but in practice, HMRC usually seeks payment from the PRs, not the beneficiary.

Question 7

What happens if a gift with reservation (e.g., property retained for use) is not taxed by the donee?

Answer 7

The PRs become liable if the donee fails to pay IHT within 12 months of the end of the month in which the deceased died.