Chapter 24 - Inheritance tax

Question 1

What is inheritance tax charged on?

Answer 1

• A transfer of value
• of chargeable property
• by a chargeable person

Question 2

When does a charge to inheritance tax arise?

Answer 2

• On the death of an individual
• on lifetime gifts with 7 years of the date of death
• on some lifetime gifts which are taxed at date of gift

Question 3

What is “a gift of any asset which results in a reduction in the value of the donors estate”

Answer 3

A transfer of value

Question 4

How do you calculate the diminutive value (loss to donor)?

Answer 4

Value of estate before gift

Less: Value of estate after gift

Question 5

If an individual is domiciled in the UK what are they liable to under IHT?

Answer 5

Worldwide assets

Question 6

If an individual is not domiciled in the UK what are they liable to under IHT?

Answer 6

UK assets only (usually)

Question 7

What are the thee types of lifetime gift?

Answer 7

Exempt
Potentially exempt transfers (PETs)
Chargeable lifetime transfers (CLTs)

Question 8

What is the IHT treatment of Exempt gifts?

Answer 8

no IHT

Question 9

What is the IHT treatment of PET gifts?

Answer 9

Become chargeable if the donor dies within 7 yrs of the date of gift.

Question 10

What is the IHT treatment of CLT gifts?

Answer 10

Taxed immediately and also on death

Question 11

What should gifts into trusts be treated as ?

Answer 11

CLT’s

Question 12

Can transfers on death be a PET?

Answer 12

No

Question 13

Name the four reliefs and exemptions for lifetime gifts?

Answer 13

• Small gifts exemption
• Marriage exemption
• Normal expenditure out of income
• Annual exemption

Question 14

Name the exemption on lifetime gifts and death estate

Answer 14

Inter spouse exemption

Question 15

What are the three key points of small gifts exemption?

Answer 15

Lifetime gifts are exempt if they are

• an outright gift to an individual of no more than £250
• Per recipient
• Per tax year

Question 16

If a person gifts someone £240 then a further £100 what happens?

Answer 16

Neither gifts are now exempt

Question 17

How much can a parent gift with the marriage exemption?

Answer 17

£5000

Question 18

How much can a grandparent gift with the marriage exemption?

Answer 18

£2500

Question 19

How much can a groom or bride gift eachother with the marriage exemption?

Answer 19

£2500

Question 20

How much can a someone gift with the marriage exemption?

Answer 20

£1000

Question 21

What is the marriage exemption conditional on?

Answer 21

The marriage taking place

Question 22

Give two examples of Normal expenditure out of income

Answer 22

• Payment of school fees by grandparent

- Payment into a child life insurance policy

Question 23

What are the two key points about Normal expenditure out of income?

Answer 23

• Is made a persons normal expenditure

- Does not effect donors standard of living

Question 24

How much is the annual exemption against lifetime transfers?

Answer 24

£3000

Question 25

How is the AE applied?

Answer 25

- Chronologically to the first gift of the tax year and so on - must be applied to the first gift each year even if PET

Question 26

What can you do with unused AE?

Answer 26

- Be carried forward one year | - But only used after current years AE

Question 27

How do you calculate the chargeable amount of a PET or CLT?

Answer 27

Value of estate before transfer Less: Value of estate after transfer Less: Exemptions

Question 28

When is the Nil rate band applicable?

Answer 28

At the time of the gift

Question 29

What is the current Nil rate band?

Answer 29

£325,000

Question 30

What are the rules if the Donee pays the tax?

Answer 30

- Gift is referred to as a gross gift | - taxed at 20%

Question 31

What are the rules if the Donor pays the tax?

Answer 31

- The gift is referred to as a net gift - the donors estate is reduced by value of gift and tax on gift - Taxed at 25%

Question 32

If the question does not state who pays the tax, who do we assume pays the tax?

Answer 32

Donor

Question 33

What is the due date of the tax for a CLT?

Answer 33

6 April to 30 September - 30 April following year 1 October to 5 April - Six months after the end of the month of the CLT

Question 34

What is the death rate of tax?

Answer 34

40%

Question 35

When is IHT as a result of death due?

Answer 35

Earlier of 6 months after the end of the month of death or When filed with HMRC

Question 36

Who are direct descendants?

Answer 36

Children or grandchildren

Question 37

What is the additional Residence nil rate band (RNRB)?

Answer 37

Lower of £150,000 or Value of the main residence

Question 38

When does the date of death have to be for RNRB?

Answer 38

after 6 April 2017

Question 39

How do you calculate the value of the main residence?

Answer 39

After deduction payments on mortgage for the property.

Question 40

When is the payment due on the death estate?

Answer 40

Earlier of Delivery of the estate accounts to HMRC 6 months after the end of the month of death