Chapter 10: Inheritance Tax Flashcards
(30 cards)
when can inheritance tax be charged?
Life transfers:
LCT
PET
On death (death transfer)
what is a lifetime chargeable transfer?
Transferor is alive
any person/ legal entity/ specified trust
(discretionary trust, gift to a company, property trust)
NOT a disabled person/ trust
lifetime rate 20% (outside NRB)
death rate 40% (dies within 7 years)
What is a potentially exempt transfer?
Transferor is alive
cash gifts/ absolute/ bare trust/ disabled trust
charged at 0% if transferor does not die before 7 years - ‘wait and see’
charged 40% if dies within 7 years
what is ‘value’?
Money - actual value of money
Property - the amount transferors estate is reduced (market value).
what is a sale at undervalue?
someone tries to sell an item for bargain price to hide a gift.
IHT still taxed at the market value.
when is there not a transfer for value?
to fulfil obligation to maintain spouse/ child etc
sold on open market undervalue - no knowledge of doing so
To who are gifts are exempt transfers?
Spouse
Charity
Political party
National institution
Non- profit entities e.g community organisations
what is the annual exemption?
£3,000 limit per tax year on a gift - no IHT
Carry unused amount over to next year (1 year limit) £6,000 per time
what presents are exempt?
Parent - £5,000 free IHT
Grandparent - £2,500
Non relation - £1,000
when is an LCT taxed twice?
dies within 7 years
subject to lifetime tax 20%
and death rate 40%
(NRB applies)
what are the steps to calculate inheritance tax?
- What is the value of the transfer?
- Deduct any exemptions
- Deduct any reliefs
- Calculate cumulative total of all transfers to date
- Calculate anything remaining in NRB
- Apply IHT to the new transfer value at the applicable rate
- If you can - apply taper relief
what reliefs are available?
Business property relief (BPR)
Agricultural property relief (APR)
when is a BPR free of tax?
If the transferor is selling a business/ interest in a business (or partnership)
The transferor owned the business as the sole proprietor for at least 2 years
Been a partner or has shares 2 years.
Private company. (NOT a public limited company)
when is 50% of a business transfer free of tax?
Transferor control of public company
Transferring shares of that company
Transferring specified assets (land, buildings, plant, machinery) - private or public company
Company under control/ partnership by transferor
When does APR apply?
Occupied for agricultural purposes
At least 2 years by transferor
OR owned by transferor 7 years but occupied by someone else for agricultural purposes (tenant farmer)
when does taper relief apply?
ONLy on lifetime transfers
what are the taper relief rates?
Transferor dies:
6-7 years after LCT/PET only 20% payable of chargeable tax (remember NRB)
5-6 years = 40%
4-5 years = 60%
3-4 years = 80%
3 years = no taper
what is NRB?
Transfer up to £325,000 over 7 years at 0% tax rate.
when does the 7 year period start when calculating?
7 years from date of most recent transfer.
when is unused NRB transferred?
transfer unused NRB to spouse/ civil partner on death.
what is residence NRB?
residential property in the estate is transferred to direct decedent (child or grandchild) or descendent of spouse.
(Set at £175,000)
what is the effect of death on PET?
40% tax payable if nil rate band used.
what is included in the death estate for tax purposes?
joint tenancy interest - tax on half the share
gifts and interest in settled property
gift with reservation
