IHT Flashcards
Inheritance Tac (Cap Tax) (18 cards)
What is the key legislation regarding IHT?
Inheritance tax 1984
Where would you find the definition of market value?
Section 160 of the IHT 1984
What is prudent lotting?
Dividing property into seperate lots to maxamise overall value
Prudent lotting case law?
Duke of Buccleuch v IRC [1967]
Spcial purcashers should not be considered - Split into Prudent Lots
What is a statutory consideration for IHT?
Flooding of the market
What is the nil rate band?
£325,000, £650k with transferable nil rate
What is the residence nil rate band?
£175,000 (can combine to have £1 mil per household)
Used when passing to direct decendents
Exemptions?
Gifts made to one’s spouse or civil partner.
Gifts made to charities. (can reduce IHT rate down to 36% if you leave more than 10% of estate to charity)
Gifts made to political parties.
Dispositions for the national interest (for example the National Trust or public museums)
Is there any RICS guidance on capital gains tax and inheritance tax?
UK VGPA 15
What is the definition of open market value for the purposes of Inheritance Tax?
Price for property on the open market between hypothetical willing buyer and seller at valuation date, disregarding flooding of the market (Section 160 IHTA 1984).
What is an undivided share?
A fractional interest in a property where the owner does not have exclusive possession of any specific part.
Why is a discount applied for undivided shares?
Reflects the reduced marketability and lack of control.
What discounts are given for undivided shares and why?
10% discount: When the co-owner is a close relative and cooperation is likely. Less risk
15% discount: When the co-owner is unrelated or less likely to cooperate. More risk
What are 2 important case laws pertaining to undivided shares:
CIR V Wright & Moss [1989] - An undivided share in property should be valued less to reflect lack of control and marketability — supporting a discount.
IRC v Gray [1994] - Reflect what a hypothetical purchaser would pay for the actual undivided share, justifying a discount from full pro-rata value
What is PET?
A gift from one individual to another that is IHT-free if the donor survives 7 years
What is the 7-year rule? (PETs)
If the donor dies within 7 years of a gift, it may be taxable. If they survive 7 years, no IHT is due.
When does taper relief apply to PETs?
First 2 years, pay 100% tax. Every year thereafter they pay 20% less until the 7th year is finished where it is IHT exempt.
What reliefs are there for IHT?
Business and agricultural premises are subject to relief from 50% to 100%
