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Tax Law > Inheritance Tax > Flashcards

Inheritance Tax Flashcards

1
Q

What is the inheritance tax rate charged on transfers of an individual’s property on death?

A

40%

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2
Q

If X is domiciled in the UK, transfers may be subject to IHT regardless of where in the world the […]

A

property is located

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3
Q

If the transferor isn’t domiciled in the UK, IHT is applied only to their […]

A

UK assets

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4
Q

Explain the loss to donor rule

A

The measurement of a value of a gift by the amount by which the gift diminishes the donor’s estate

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5
Q

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

A

higher

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6
Q

What are potentially exempt transfers (PETs)?

A

Lifetime transfers to individuals - these are not immediately chargeable to tax but are chargeable if made within 7 years of donor’s death

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7
Q

Give five transfers that are exempt from IHT (exempted transfers)

A
  1. Gifts to spouse/CP
  2. Gifts to charities
  3. Small gifts
  4. Wedding gifts (subject to requirements)
  5. Normal expenditure out of income
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8
Q

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?

A

£325,000

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9
Q

What are the wedding gift limits?

(clue: from Parents, Grandparents and Great grandparents, Bride to groom, and Everyone else)

A

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

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10
Q

Small gift allowance are gifts per person up to what amount per year?

A

£250

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11
Q

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?)

A

Yes

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12
Q

Are wedding gifts all or nothing in relation to IHT being chargeable?

A

No - only the excess amount becomes chargeable

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13
Q

What is the annual exemption that can be used to offset gifts each year?

A

£3,000

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14
Q

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 _________

A

carried forward, disappear, £6,000

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15
Q

PETs: If a donor dies within 7 years of making a gift, who will the IHT due on the gift be payable by who?

A

The recipient of the gift

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16
Q

What are chargeable lifetime transfers?

A

Lifetime gifts made to a trust or company that are usually immediately chargeable to tax

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17
Q

Can CLTs be reduced by annual exemptions?

A

Yes

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18
Q

CLTs: what is the tax rate if the IHT is paid by:
1. Trustees
2. Donor

A
  1. 20%
  2. 25%
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19
Q

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

A

7 years, current gift

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20
Q

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 _______

A

7 years, death

21
Q

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?

A

Taper relief

22
Q

Give the taper relief amount for the following times between date of gift and date of death:

  1. 0-3 years
  2. 3-4 years
  3. 4-5 years
  4. 5-6 years
  5. 6-7 years
A
  1. 0-3 years = 0%
  2. 3-4 years = 20%
  3. 4-5 years = 40%
  4. 5-6 years = 60%
  5. 6-7 years = 80%
23
Q

Taper relief reduces the ___ _________ instead of the amount of the gift.

A

tax payable

24
Q

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?

A

£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)

25
Q

If a donor dies within _ ______ of making a CLT, the ________ will owe additional IHT on CLT

A

7 years, trustees

26
Q

What is business relief on IHT?

A

A relief applied before annual exemptions that reduces the value of business property given as a lifetime gift to a trust or at death

27
Q

In which 2 situations is 100% business relief applied?

A
  1. D transfers a sole trade business or partnership interest to a trust
  2. D transfers shares in an unlisted trading company that have been owned for at least 2 years
28
Q

In which 2 situations is 50% business relief applied?

A
  1. D transfers shares in a quoted trading company if they own more than 50% voting share for at least 2 years; or
  2. D transfers land or buildings or plant and machinery used by a p’ship/company in their control owned for at least 2 years
29
Q

For how long must a donor own a business for business relief to apply?

A

At least 2 years

30
Q

Business relief will only be given if the business carried on by the sole trader, partnership, or company is…

A

trading

31
Q

Is a business whose trade is to make or hold investments or to deal in property eligible for business relief?

A

No

32
Q

What is agricultural relief?

A

A relief used where D transfers agricultural property to a trust during life or at death

33
Q

What is the agricultural relief percentage?

A

100%

34
Q

What are three requirements for Agricultural relief to apply?

A
  1. Land used for purposes of agriculture in the UK or EEA
  2. D owned the land transferred for at least 2 years or
  3. D leases out land transferred to trust if used for agricultural purposes by the tenants and owned by D for at least 7 years
35
Q

What two gifts on death are exempt?

A
  1. To spouse or CP
  2. to charities
36
Q

If the decedent gives more than 10% of their net chargeable assets (that is, the value of the estate after deducting all reliefs, exemptions, and the NRB) to a charity, the IHT is reduced to what percentage?

A

36%

37
Q

If a decendent spouse didn’t use all their NRB when they died before the decendent, the ______ ________ of NRB may be transferred to the decedent to give them an uplift in their NRB by up to an additional ____

A

unused proportion, 100%

38
Q

What is a residence nil rate band?

A

An additional NR available if an estate includes a home that was used as D’s private residence if the residence/proceeds are left to lineal descendants

39
Q

Do the descendants of D need to occupy the residence after the death for residence NRB to apply?

A

No

40
Q

What is the residence NRB the value of?

A

The dwelling at the time of death

41
Q

Estates with a net value over what amount result in the Residence NRB is tapering away at the rate of £1 for every £2 over that limit?

A

£2,000,000

42
Q

Can unused residence NRB be transferred between spouses on death?

A

Yes

43
Q

What is quick succession relief?

A

A relief given when individual’s estate was increased by a gift made to them in the 5 years before death upon which IHT was paid.

44
Q

What is a gift with reservation of benefit and what’s the impact of it on the donor’s estate?

A

When A gives away an asset but continues to benefit from it, the gift is treated as being in the donor’s estate when they die

45
Q

In most cases, who is liable for IHT on property transferred on death?

A

Personal representatives

46
Q

For gifts with a reservation of benefit, the _____ of the gift is primarily liable to pay IHT, but the ___ will be liable if not paid within __ ______ after death

A

donee, PRs, 12 months

47
Q

Inheritance tax payable on lifetime gifts as a result of death is always paid by the _______ of the gift. The extra tax is due _ _____ after the end of the month of death.

A

recipient, 6 months

48
Q

Which 4 assets can IHT be paid in instalments?

A
  1. Land
  2. Shares
  3. Part or all of a business
  4. Agricultural land

(note that most Agricultural land is exempt though)

Tax Law (7 decks)

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