Individual Taxation - IHT & Business Exemption Relief

Question 1

What are the 3 types of transfers that may trigger IHT?

Answer 1

1. Potentially Exempt Transfers (PETs) - lifetime gifts to individuals
2. Lifetime Chargeable Transfers (LCTs) - Lifetime gifts into trust or similar
3. Death - deemed transfer of deceased’s estate

Question 2

What determines the value of the IHT transfer?

Answer 2

For PETs an LCTs - the reduction in the donor’s estate
For death: the open market value of the assets just before death

Question 3

What is the nil rate band for IHT?

Answer 3

£325K

Question 4

What is IHT rate for transfers exceeding the NRB?

Answer 4

40% on death
20% for lifetime chargeable transfers (LCTs)

Question 5

What is residence nil rate band?

Answer 5

An additional £175k for estates passing the family home to lineal descendants, applicable on deaths after 6 April 2017

Question 6

What is the Transferable Nil Rate Band?

Answer 6

The unused NRB and RNRB of a deceased spouse or civil partner can be transferred to the surviving spouse or civil partner

Question 7

How is the available NRB determined when cumulation applies?

Answer 7

£325k minus cumulative total of chargeable transfers in the previous 7 years = available NRB

Question 8

What is the purpose of cumulation in IHT?

Answer 8

To prevent individuals from reducing IHT liability by making multiple small gifts - HMRC includes any chargeable transfers made in the 7 years prior to the current one

Question 9

What is Business Property Relief?

Answer 9

A relief from IHT that reduces the taxable value of qualifying business assets, available on both lifetime transfers and the death estate

Question 10

What type of assets qualify as BPR?

Answer 10

• A business or an interest in a business
• shares in an unquoted company
• Shares in a quoted company if the transferor has control
• Land or assets used by a company the transferor controls or a partnership they were in

Question 11

What is the ownership requirement for BPR?

Answer 11

The asset must have been owned by the transferor for at least 2 years immediately prior to the transfer

Question 12

When is BPR not available?

Answer 12

If the business or company’s activities consist wholly or mainly of making or holding investments, eg. buy-to-let holding companies

Question 13

What are the BPR rates of relief?

Answer 13

• 100% relief for
  - a business or interest in a business
  - Shares in an unquoted company
• 50% relief for:
  - Shares in a quoted company where the transferor had control
  - Land/buildings used by a business the transferor controls

Question 14

What happens if a transfer qualifying for BPR is reassessed on death within 7 years?

Answer 14

BPR is still available only if the asset (or replacement asset) still qualifies for BPR in the transferees’ hands at the time of death

Question 15

What are the steps to calculate IHT on a failed PET or LCT?

Answer 15

A – Calculate cumulative total
B – Identify value transferred
C – Apply exemptions and reliefs
D – Apply NRB and calculate tax
E – Apply taper relief
F – Give credit for any tax paid in lifetime

Question 16

What are the steps to calculate IHT on the death estate?

Answer 16

1. Calculate cumulative total
2. Identify assets in taxable estate
3. Value the taxable estate
4. Deduct debts/expenses
5. Apply exemptions and reliefs (e.g. BPR)
6. Apply RNRB
7. Apply NRB and calculate tax