IHT Strategies

Question 1

What is the double tax on country agreements?

Answer 1

• Country where the property is located, has the predominant right to tax and the other country will provide a tax credit for that tax

-Where the UK does not have a specific double taxation agreement with another country, ‘unilateral relief’ may be applied

The scope of the charge is restricted – an individual is deemed domicile in UK but also domiciled/resident in another country, the terms of the agreement will allow one country to have exclusive taxation rights. The other country will not levy a charge.

Question 2

What is the oversea tax on estate?

Answer 2

Formula: (Oversea asset value/total estate) X IHT liability

Ex. Abroad was subject to local death tax equivalent to £10,000 but IHT liability was £21k. . . tax credit is 10k

The credit is the lower: of the UK liability (step 2) and oversea charge

Question 3

What is unilateral relief?

Answer 3

If no double taxation agreement w/ other country, or double taxation agreement doesn’t include IHT or similar, apply for unilateral relief assuming There is a oversea inheritance tax being applied. Get the lower of UK liability or oversea tax, same calc.

Question 4

What asset would still be charged IHT in UK for a non-domiciled UK person?

Answer 4

One exception: if non-UK assets derive value from UK residential property, or been used as security for a loan used to buy or improve a UK residential property, the assets are treated as UK assets for IHT.

Question 5

What is the one time that a spouse might still have IHT from inheriting from a spouse

Answer 5

if a spouse/civil partner w/UK domicile leaves their estate to a spouse who is non-domicile, only that part of the estate up to the NRB will be exempt. The survivor can gain the full spouse exemption by electing to be treated as UK domicile for IHT purposes

Question 6

What are excluded property trust?

Answer 6

Trusts established outside the UK
Set up while the settlor was non-domiciled;

Question 7

How is the unused NRB transferred to another spouse?

Answer 7

The percentage of unused NRB from first spouse’s death, expressed as a proportion of the NRB at the time of the survivor’s death, is added to the survivor’s own NRB.

For example, if the deceased used 25% of their NRB on death, 75% can be transferred to the spouse. It is the percentage, not the amount that is transferred, so the spouse would have 175% of the NRB applicable when they died.

the only time it’s the amount is a spouse w/no assets on death will have a full NRB available to transfer – it is the amount of the NRB they use, rather than the value of their estate that counts.

Question 8

How does RNRB apply on trust?

Answer 8

The terms of the trust must clearly define the specific beneficiary/ beneficiaries, so the RNRB is not available to relevant property trusts,

As the RNRB is only available on death, it cannot be applied to trusts set up through lifetime gifts.

1. bare (or absolute) trust for a lineal descendant;
2. immediate post-death interest (IPDI) trust for a lineal descendant (or their spouse/civil partner) – it is defined as an interest-in-possession trust;
3. disabled person’s trust for a lineal descendant (or their spouse/civil partner);
4. 18-to-25 trust (which can only be established by parents);
   bereaved minor’s trust (which can only be established by parents).

Question 9

What are exempt beneficiaries from IHT?

Answer 9

1. a spouse that are UK-domiciled; if not, the exemption is limited to £325,000
2. Some national institutions, such as museums, universities and the National Trust
3. a ‘qualifying’ charity established in the UK, the EU or another specified country
4. any UK political party with at least two members elected to the House of Commons, or one elected member but the party received at least 150,000 votes

Question 10

What are exempt gifts?

Answer 10

1. £3,000 /year, can carry forward 1 year only
2. wedding gifts: 5k kids, 2,500 grandkids, 1k everyone else
3. Regular gifts - periodic regular payments
4. Maintenance payments - insurance payments, upkeep for family members in need

Question 11

What are potentially exempt transfers?

Answer 11

any gifts made 7 years prior to death. Must forego any interest from the gift(otherwise gift w/reservation)

Question 12

What is a POAT?

Answer 12

Pre-Owned Assets Tax: where an individual disposes of an asset but somehow retains the ability to use or enjoy it

Question 13

What is Agricultural relief?

Answer 13

1. Agricultural property in the UK, Channel Islands, Isle of Man or the EEA qualifies for relief from IHT typically at a rate of either 50% or 100%.
2. Certain agricultural shares and securities.
   3.The property must have been owned and occupied for agricultural purposes immediately before its transfer for two years if it is occupied by the owner or a company over which they have control, or their spouse/civil partner; or seven years if it is occupied by someone else.

Relief is available at 100% if the owner:

farmed the land themselves;
let the land on a short-term grazing licence;
let the land on a tenancy that began on or after 1 September 1995.
If the property was rented out before 1 September 1995, relief may only be given at 50%. In some situations, however, land rented out before 10 March 1981 can qualify for 100% relief.

Question 14

What is woodland relief?

Answer 14

When an estate includes woodland, the value of the timber, but not the land, be excluded from the estate

When the timber is subsequently sold, may then have to pay IHT on the value of the sale unless it also qualifies for relief.

Question 15

What kinds of relief are there?

Answer 15

Agricultural
woodland
National heritage: buildings of outstanding historic or architectural interest, or objects with national scientific, historic or artistic interest.
Charity - 10% of net estate(after 325k deducted)
Business

Question 16

What does business relief not apply?

Answer 16

-generates investment income – property letting, serviced office provision;
-is being wound up or is subject to a contract for sale;
-is a not for profit;
-mainly involves dealing in securities, stocks, shares, land, buildings, or providing or holding investments (HMRC, 2022).

Question 17

When does business relief apply at 100%?

Answer 17

1. The transfer of the whole of a business owned by a sole trader.
2. The transfer of an interest in a partnership including land and equipment owned by the business.
3. Unquoted securities giving control of an unlisted company.
4. Unquoted shares, including those listed on the Alternative investment market (AIM). - own 2yrs prior death

Question 18

When does business relief apply at 50%?

Answer 18

1. Quoted shares giving control of a company.
2. Land, buildings, machinery or plant and used mainly for business of their partnership or a Co, which they had control – does not apply to land and buildings used by a sole trader in their business, unless they are the life tenant of a trust.
3. Land, buildings, machinery or plant owned by a trust and used mainly for a business carried out by a life tenant of the trust.

Question 19

How to take Advantage on 100% business relief over 50%?

Answer 19

A partnership should own the land, buildings and machinery used in the business, rather than the assets being owned by the partners personally. because the assets will be counted as part of the business transferred and subject to 100% relief. If they are owned by partners they would only qualify for 50% relief.

Question 20

What are The three main ways of mitigating an IHT

Answer 20

1. give up ownership of assets
2. maximise reliefs; or
3. put plans in place that will pay the liability when it falls due: Gift inter vivos (decreasing-term insurance) on PET; If a policy is written under trust, it is paid out free of IHT

Question 21

What is a deed of disclaimer?

Answer 21

Reject inheritance: refuse to accept capital and/or income by employing a deed of disclaimer, as long as they have not yet received any benefit from the gift. They must disclaim the whole of a gift, so if the bequest was for £50,000 they cannot disclaim just £20,000.

-will pass back into the estate for distribution to others under the terms of the will or intestacy as if it had never been made, and the person disclaiming will have no right to influence its ultimate destination.

Question 22

What is a deed of variation?

Answer 22

deed of variation which may be used to change the terms of a will, effectively rewriting part of it. The deed can be used to redirect bequests to someone else and/or to rearrange the estate for IHT purposes. All negatively impacted beneficiaries must agree.

Question 23

How much assets before you don’t have to pay for LTC yourself?

Answer 23

Under current legislation, individuals must fund their own care from their own assets until they are reduced to £23,250 – well below the IHT NRB.

Question 24

when do you get 50% business relief?

Answer 24

50% for:
shares controlling more than 50% of the voting rights in a listed company;
land, buildings, plant or machinery used in a business that an individual is a partner in or controls at the time of their death;
land, buildings, plant or machinery held in a trust where an individual has the right to benefit from the trust and use the assets in the trust in their business.

Question 25

What is agricultural Relief?

Answer 25

Agricultural relief is usually given at 100% for agricultural property, including land or pasture, that is actually used for agricultural purposes and is proportionate in size to the nature and size of the farming activity. The land being potentially able to be used for agriculture is not enough to qualify for the relief.

Question 26

How to use deed of variation?

Answer 26

1. made in writing;
   signed by the person(s) giving up their entitlement;
2. made within two years of the testator’s death;
3. clear on what is being redirected and to whom; effective for IHT and CGT purposes; and
4. done without any consideration (payment) in return.