Inheritance Tax Flashcards
(26 cards)
Effect of domicile
UK Doms: liable to IHT on worldwide assets
Non-doms: liable to IHT only on transfer of UK assets
What is the principle we use when valuing donor’s estate?
The loss to the donor’s estate
What is the related property rule?
If Donor has shares of a certain value and so does their spouse, the starting value of estate is calculated with both of their shares in mind, and the final value of the estate after the transfer also takes both into account
LIFETIME TRANSFERS - which transfers are exempt?
- Gifts to charity
- Gifts to spouses
- Small gifts of £250
- Gifts on marriage
- Normal expenditure out of income (e.g. supporting a child)
Does the Annual Exemption only apply to life-time transfers, and how much is it?
Yes, and it is £3,000. You must use this on the first gift in time and you must use it before bringing forward the unused £3,000 (or what is left from it) from the previous year (if applicable).
How to calculate tax on CLTs?
- Apply annual exemptions (£3,000) to get to net chargeable amount
- Add up any CLTs made within 7 years of gift (gross amount of transfer + any tax paid)
- Take away from NRB
- Apply relevant tax-rate to anything over NRB: 20% if trustees paying and 25% if donor paying
NOTE: if donor pays the tax, the value of the gift is taken to include the amount of tax paid (taxable gift amount + tax paid)
How do we work out tax on PETs which become chargeable (on death)?
- Apply annual exemptions to get to net chargeable amount
- Deduct from NRB any PETs made 7 years before PET
- Tax anything above at 40%
- Taper the amount of tax:
0-3 years - 0
3-4 years - 20
4-5 years - 40
5-6 years - 60
6-7 years - 80
= if 80% taper relief, take 20% from the taxable amount
How do you calculate death tax on CLTs?
Additional tax if donor dies within 7 years of CLT - same process as CLT lifetime transfer but tax now paid at 40% (with taper relief) and then tax already paid is deducted
What IHT tax reliefs are available for lifetime transfers?
BUSINESS RELIEF
AGRICULTURAL RELIEF
BUSINESS RELIEF (only applies to trading business, not investment businesses etc)
100% relief:
- business or interest in partnership
- shares in an unlisted company
50% relief:
- Quoted shares (more than 50% ownership)
- Land plant or buildings used in trade
Must have owned property for at least 2 years
AGRICULTURAL RELIEF - available at 100%
100% relief for transfers of land and buildings used for the purposes of agriculture in UK, Channel islands, Isle of Man or EEA
Available to farmer who owns the land (2 years min) or landowner letting the land to a farmer (7 years min)
How do we calculate IHT at death?
No annual exemption available (£3,000!) for tax at death
Value of estate
Minus liabilities and funeral expenses
Apply NRB to any CLTs or PETs in 7 years before death
Use remaining NRB and spouse transferred NRB on estate
Anything above taxed at 40%
IHT on death - Value of estate
Exempt gifts:
Gifts to a spouse
Gifts to a charity
Excluded: Gifts passing outside the will - trusts with named beneficiary, pension fund with named beneficiary
Liabilities deducted (including income and CGT owed by the estate)
What is the baseline value of the estate?
BASELINE = value of estate after deducting reliefs, exemptions, and available NRB
What is the transferable NRB?
Applies only to transfers on death (not lifetime transfers)
Uplift based on a percentage of current NRB
Can transfer from up to 2 spouses
What is the residence NRB? Death estate only
When private residence is left to a lineal descendant.
£175,000 tax free
Tapered for estates over 2million
Can transfer unused RNRB between spouses; tapered if spouses estate more than 2 million
What is quick succession relief?
If A makes a transfer to B which is subject to inheritance tax and B dies within 5 years of transfer, B’s estate will not have to pay normal IHT. Amount of IHT increases by 20% for each year since A’s death
What are the post-mortem reliefs?
Quoted Shares
Land and Buildings
Woodlands Relief
How are gifts with reservation of benefit treated for the purposes of the estate?
Asset treated as still forming part of the estate UNLESS donor pays rent
When is IHT due on chargeable lifetime transfers?
IHT due on the later of (i) six months from the end of the month the CLT was made or (ii) 30 April after the tax year in which it was made
Who pays IHT on life-time transfers?
Donor or the trustee (25 v 20%)
IHT on death - when paid?
6 months from the end of the month of death of transferor
Who pays IHT on CLTs/PETs on death?
Trustees are liable and the burden will be on the beneficiaries
Who is liable for tax on the death estate?
Freehold estate: Executors pay the tax; burden is on the residuary beneficiary
Property passing outside the Will: Executors pay; burden on the beneficiary
Property held in a trust: Trustees pay; burden is on the beneficiaries
Gifts with reservation of benefit: Donee of the gift pays. If unpaid after 12 months, it is paid by the executors
