Ch 10/11/12 IHT

Question 1

Scope of inheritance tax

Answer 1

Transfer of value = gift on an asset (left on death & lifetime transfers)

Of

Chargeable property

By a

Chargeable person= Individual who is UK dom (worldwide charge) or Not UK dom (UK charge)

Question 2

Lifetime gifts (3 types)

Answer 2

Exempt transfers= PET’s at any point (when donor is alive)
PETs= Value frozen at time of gift. Chargeable anytime within 7 year. (After 7, gift becomes exempt)
CLTs=Transfers into trusts (IHT chargeable at time of transfer; also chargeable at death if <7 years)

Question 3

Lifetime gifts pro-forma

Answer 3

Estatevalue (before gift)
Less estate value (after gift)
= Transfer of value

Less:
APR
BRP
Specific exemptions (Inter-spouse gifts, political & charity donations
AE (x2)

Less:NRB available after deduction of Gross chargeable transfers.

IHT payable (20% if you/ 25% if donor)

Paid by ? If not in Q (assume. Donor pays tax and gift is net)

Due date: first 6 months of tax year (30th April)- 2nd half of year (6 months after end of gift month)

Question 4

Exemptions to Lifetime gifts

Answer 4

Small gifts exemptions:
-gift of <£250 per recipient per year.

Marriage/civil partnership exemption: (i.e wedding gift from:). (Can exempt part of larger gift)
-parent £5000
-Grandparent or party to marriage £2500
-Anyone else £1000

Question 5

Lifetime gifts chargeable on death (Death tax due on lifetime transfers <7 years prior to death

DUE 6 months after death month.

Answer 5

-PET’s become chargeable for the first time.
-Additional tax may be due on CLTs

-Deceased entitled to own NRB £325,000 22/23 at death.
- If widow or widower: can also claim unused % of current NRB.

Question 6

Death tax on death estate

Answer 6

Net assets owned at date of death. X
(Less: exempt legacies) - to spouses, charities or political parties. (X)
Gross Chargeable estate. =X

RNRB (available if applicable). (X)
NRB at date of death. X
Less: GCT in <7 years before death (X)

Taxable estate. X

taxable estate taxed at 40% or 36%. ……….

Question 7

RNRB=Residence Nil rate Band

Answer 7

Lower of £175,000 or net value of property available.

Question 8

Diminution in value as a result of a transfer

Answer 8

Value before transfer

Less:
Value after transfer

Diminution of value = updated valuation

Question 9

Business property relief - Business want people to continue trading

Answer 9

BETTER TO NOT SPLIT (e.g. 50/50 son and daughter as only get 50% relief. If transfer is to one or the other then 100% relief.

100% relief for unincorporated businesses and unquoted shares in companies.
50% relief for quoted shares and L&B/P&M

OWNERSHIP MUST BE 2 out of last 5 years combined to qualify for BPR.

*NOT AVAILABLE IF ASSET IS CONTRACT FOR SALE (whole point of relief is that trade continues)

Question 10

QSR (QUICK SUCCESSION RELIEF).

Reduces IHT payable on death estate if deceased inherited are in <5 years before death.

Answer 10

IHT paid x (inheritance value received portion of whole Estate before death) x % of QSR

0-1. 100%
1-2. 80%
2-3. 60%
3-4. 40%
4-5. 20%

E.g. £160,000 x ((£120,000/£720,000) x 60%)=
£16,320

Question 11

Deed of variation = Change will after individual has died

Answer 11

Can change will after someone has died if:

-all affected beneficiaries agree in writing within 2 years of death
-must include statement that variation is to have effect for IHT purposes

Situations when useful:
-Skip generation and avoid IHT on children (straight to grandchildren)
-Divert family home for RNRB to direct descendants (i.e not nephew)
-Increase charitable donation to 10% to reduce tax rate by 4%.