Inheritance Tax Flashcards
(48 cards)
What is the inheritance tax rate charged on transfers of an individual’s property on death?
40%
If X is domiciled in the UK, transfers may be subject to IHT regardless of where in the world the […]
property is located
If the transferor isn’t domiciled in the UK, IHT is applied only to their […]
UK assets
Explain the loss to donor rule
The measurement of a value of a gift by the amount by which the gift diminishes the donor’s estate
If a donor’s spouse owns similar property and D’s property would be more valuable if the spouse’s property is taken into account, we use the _______ value
higher
What are potentially exempt transfers (PETs)?
Lifetime transfers to individuals - these are not immediately chargeable to tax but are chargeable if made within 7 years of donor’s death
Give five transfers that are exempt from IHT (exempted transfers)
- Gifts to spouse/CP
- Gifts to charities
- Small gifts
- Wedding gifts (subject to requirements)
- Normal expenditure out of income
For gifts to Donor’s spouse/CP, if spouse is not domiciled in the UK, only the first of what amount is exempt from IHT?
£325,000
What are the wedding gift limits?
(clue: from Parents, Grandparents and Great grandparents, Bride to groom, and Everyone else)
Parent - £5,000
Grandparents and Great Grandparents - £2,500
Bride to the groom or vice versa (before the wedding)- £2,500
Everyone else - £1,000
Small gift allowance are gifts per person up to what amount per year?
£250
Is the £250 exemption an all or nothing gift in relation to IHT being chargeable? (in that if a gift is over the £250, the whole amount becomes chargeable?)
Yes
Are wedding gifts all or nothing in relation to IHT being chargeable?
No - only the excess amount becomes chargeable
What is the annual exemption that can be used to offset gifts each year?
£3,000
An unused annual exemption may be _______ _______ into next year, but will _________ if it’s still not used. This means the maximum annual exemption that can be used in any year is _________
carried forward, disappear, £6,000
PETs: If a donor dies within 7 years of making a gift, who will the IHT due on the gift be payable by who?
The recipient of the gift
What are chargeable lifetime transfers?
Lifetime gifts made to a trust or company that are usually immediately chargeable to tax
Can CLTs be reduced by annual exemptions?
Yes
CLTs: what is the tax rate if the IHT is paid by:
1. Trustees
2. Donor
- 20%
- 25%
If CLTs were made in the previous _ _____ before the transfer was made, we have to add those to the _______ ____ to determine whether the nil rate band has been exceeded
7 years, current gift
PETs: to work out the nil rate band remaining, we deduct any gross chargeable transfers made in the _ ______ before the PET, not before the date of _______
7 years, death
If there are more than 3 years between the date of the PET and the donor’s date of death, what is available to reduce the tax owed?
Taper relief
Give the taper relief amount for the following times between date of gift and date of death:
- 0-3 years
- 3-4 years
- 4-5 years
- 5-6 years
- 6-7 years
- 0-3 years = 0%
- 3-4 years = 20%
- 4-5 years = 40%
- 5-6 years = 60%
- 6-7 years = 80%
Taper relief reduces the ___ _________ instead of the amount of the gift.
tax payable
Marcus gave a gift of £500,000 (after exemptions) to his son Nathan in March 2013. Marcus died in January 2020.
Because Marcus died within 7 years of the gift, the PET fails and the gift is a chargeable transfer.
If you assume Marcus hasn’t used any of his NRB, what is the amount of IHT due on the gift?
£14,000
(remember taper relief! Because Marcus died within 6-7 years of the PET, 80% taper relief is available, meaning only 20% of the tax amount is payable (that is, 20% of £70,000)
