Inheritance tax Flashcards

(70 cards)

1
Q

What is inheritance tax?

A
  • a tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime
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2
Q

What are the four types of transfers of property?

A
  • exempt
  • potentially exempt
  • chargeable
  • death transfers
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3
Q

What are the main exempt transfers?

A
  • transfers between spouses and civil partners
    -annual exemption
  • small gifts
  • gifts in consideration of marriage
  • gifts for education & maintenance
  • gifts for charities and political parties
  • gifts for the national benefit
  • gifts or payments out of normal expenditure
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4
Q

What is annual exemption for current tax year?

A
  • £3,000 a tax year
  • can be carried forward to the next year, maximum exempt transfer of £6,000 in one year
  • the £3,000 annual exemption applicable for the tax year of the payment must be fully utilised first before any available balance from the previous year can be carried forward
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5
Q

What is the value of small gifts exempt per recipient per tax year?

A
  • £250
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6
Q

What gifts in consideration of marriage can be exempt up to certain value?

A
  • each parent can gift £5,000
  • grandparents, each £2,500
  • bride or groom £2,500
  • any other person can gift up to £1,000
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7
Q

What gifts can be made to charities and political parties to be exempt?

A
  • unlimited gifts to charities established in the EU
  • gifts to charities reduce the overall rate of IHT
  • unlimited gifts can be made to ‘major political parties
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8
Q

What is the value of gifts exempt regarding gifts for education & maintenance?

A
  • unlimited gifts for spouse or civil partner, or in respect of children
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9
Q

What are major political parties?

A
  • those with at least 2 MP’s or 1 MP and the party received at least 150,000 votes
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10
Q

What can be exempt gifts or payments out or normal expenditure?

A
  • gifts or payments made out of post-tax income
  • payments must be regular in nature
  • the out of income, not capital rule excludes withdrawals from Life Assurance (Investment) Bond collective investment products
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11
Q

What are the exempt transfer lifetime only?

A
  • annual exemption
  • small gifts
  • gifts in consideration of marriage
  • gifts for education and maintenance
  • gifts or payments out of normal expenditure
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12
Q

What are the exempt transfer lifetime and on death?

A
  • transfers between spouses & civil partners
  • gifts to charities & political parties
  • gifts for the national benefit
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13
Q

What happens if spouse is non-UK domiciled and what is the current non-domicile exempt transfer limit?

A
  • transfer has a limit, £325,000
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14
Q

PET are transfers made by an individual to:

A
  • another individual
  • a bare trust
  • a disabled trust
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15
Q

When PET will become exempt form IHT?

A
  • if donor survives for seven years after making the transfer
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16
Q

When PET will become chargeable transfer?

A
  • if the donor dies within seven years
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17
Q

If PET transfer was made during donor’s lifetime, what can reduce the value of the gift for IHT purpose?

A
  • the annual exemption
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18
Q

What could be a good example of chargeable lifetime transfers?

A
  • transfers to discretionary trusts
  • Interest in Possession trusts
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19
Q

What are the consequences of making a transfer that is classified as CLT?

A
  • an immediate IHT charge
    if not exceed the prevailing NRB, tax charge will be at 0%
    if does exceed the prevailing NRB, tax charge will be 20%
  • liability can be paid by either the donor or donee
  • no further liability regarding surviving 7 years after making the gift
  • if the donor does not survive 7 years, transfer become charged to IHT at higher death rates, any upfront paid tax can be credited against the tax now required on the death
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20
Q

What are the examples of excluded property what are excluded from the residual estate which is subject to IHT

A
  • property situated outside the UK where the deceased was non-UK domiciled
  • Unit trust & OEIC holdings where the deceased was non-UK domiciled
  • Reversionary interests in trusts (i.e. a right to capital that was reliant on another beneficiary’s rights ending first)
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21
Q

What are ineffective transfers?

A
  • are those that do not remove the property from the donor’s estate for IHT purposes
  • known as ‘gifts with reservation’
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22
Q

What is the most common example of ineffective transfers?

A
  • parents gift the deeds of their house to their children in an attempt to reduce the overall value of their estate, but remain living there and pay no rent
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23
Q

How are IHT transfers valued?

A

’ loss to the estate’

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24
Q

In what circumstances losses to an estate can be evidenced and be charged to IHT?

A
  • an individual deliberately fails to exercise a right that therefore leaves the estate being worth less than it should
  • an individual enters into a non-commercial transaction with a connected person
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25
If couples being able to split their ownership in an attempt to deliberately reduce the values for IHT purposes, what can HMRC do to avoid this being effective?
- HMRC can aggregate all related property holdings
26
What are the tax rate that apply to IHT?
0% - on lifetime or death transfers within the NRB 20% - on lifetime transfers that are deemed Chargeable Lifetime Transfers 36% - on death transfers if certain charity donation conditions are met 40% - on all other death transfers
27
What is the current NRB?
£325,000
28
Is there any possibility of transferring any unused Nil Rate Band?
yes, since October 2007, to a surviving spouse or civil partner, on second death
29
When is the additional NRB amount available if the deceased had interest in a residential property?
- had been his or her residence, and - is included in the estate, and - is left to one or more direct descendant on death
30
When is the estate entitled to Residence nil-rate band?
- individual dies on or after 6 April 2017 - individual owns a home, or a share of one, so that it's included in their estate - individual's direct descendants such as children or grandchildren inherit the home, or a share of it - value of the estate isn't significantly more than £2 million
31
What is the RNRB?
- £175,000
32
What happens with RNRB if estates value more than £2,000,000?
- gradually withdrawn or tapered away at a rate of £1 for every £2 excess over £2million - value does not include any lifetime gifts
33
When you cannot benefit from RNRB?
- estates of £2.35 million or greater - if deceased has brought forward an unused RNRB from a spouse or civil partner then RNRB fully disappear until the estate is worth in excess of £2.7 million
34
The RNRB available will be the lower of:
- the value of the home, or share, that's inherited by direct descendants - the maximum RNRB available for the estate when the individual died
35
If NRB is unused is it value or percentage what is transferred on second death?
- it is the percentage of the unused NRB that is being transferred, not the value of the unused NRB
36
What is the current maximum NRB applied at their date of death?
£650,000
37
What is the timescale for making claim for NRB?
Claim should be made within: - 2 years of the end of the moth in which the death occurs or - 3 months of beginning to act as personal representatives
38
What means that IHT is a cumulative tax?
- that relevant transfers made in the previous seven-year period are added together (cumulated) and the transfers assessed for IHT at the relevant rates - key is that the transfers are cumulated in chronological order
39
Who is liable for paying the lifetime IHT?
The trustees (the donee) - the tax is paid out of trust funds - this has the effect of effectively decreasing the transferred amount The settlor (the donor) - the donor estate is reduced by the transfer to the trust and the tax liability - the net transfer needs to be grossed-up to calculate the tax due and the total CLT value
40
What transfers will be included in the cumulation, regarding on death, with IHT rate of 40%?
PETs made in the 7 years before death - now chargeable transfers - can be reduced by Taper Relief CLTs made in 7 years before death - can be reduced by Taper Relief - the amount due on death can also be offset by any lifetime IHT paid on the transfer in question
41
What is Taper relief?
- relief on the tax due on a gift if it was made more than three years before death
42
What are two different formats what can be taper relief quoted?
- by the percentage relief - by the percentage of the tax due
43
what is the Taper relief percentage relief available on years between the gift and death : no more than 3 more than 3 but not more than 4 more than 4 but not more than 5 more than 5 but not more than 6 more than 6 but not more than 7?
no more than 3 - 0% more than 3 but not more than 4 - 20% more than 4 but not more than 5 - 40% more than 5 but not more than 6 - 60% more than 6 but not more than 7 - 80%
44
When can IHT rate of 36% apply instead of 40%?
- where at least 10% of the net estate is left to the charity - automatic, no need to be claimed
45
What is the net estate (baseline amount)?
Gross estate less: - exempt transfers (but excluding the planned charity gift) - the NRB (not RNRB) - Reliefs
46
Who is responsible to pay IHT tax?
Donor or the trustees of receiving trust - any lifetime tax on a CLT Trustees of the receiving trust - any further tax following death The recipient of a PET - any tax due on their lifetime gift following the death of the donor within seven years Deceased's personal representatives - any other tax due following death
47
When should be paid tax on lifetime transfers?
- tax is due 6 months after the end of the month of the transfer, except for transfers made between 5April and 1 October when the deadline is extended to 30 April the following year
48
When should be paid tax on death transfers?
- tax is due 6 months after the end of the month of death
49
What are the reliefs that can help reduce or even remove IHT liability?
- taper relief - relief for drops in value - quick succession relief - business property relief - agricultural property relief - relief for woodlands
50
When we can apply relief for drops in value?
- if property gifted has fallen in value since date of the gift - does not include 'wasting assets' - if the recipient still owns the property at the point of IHT assessment, value is the market value at the date of the donor's death - if the recipient has sold the property at arm's length, before the date of the donor's death, the value is the market value at the date of sale
51
When we can apply relief for quick succession relief?
- if there is a quick succession, up to 5 years from the date of the original death
52
What is the calculation for the amount of reduction that is applied to the estate of the second person to die? regarding quick succession relief
(Net transfer/Gross transfer) x Tax paid on the first transfer x The relevant % - the net transfer is the post-IHT estate that the second person receives - the gross transfer is the pre-IHT estate that the second person would have received if no IHT had been due - the relevant percentage depends on how long the recipient survived following the donor's death not more than 1 year - 100% 1-2 years -80% 2-3 years - 60% 3-4 years - 40% 4-5 years - 20%
53
What can help with Business relief?
- business can continue to trade, at a time when an IHT bill may have forced them to cease trading
54
What is the key condition for Business Relief to apply?
- is that the business property must have been owned for at least 2 years, relevant business property
55
What should you inherit a business on the death of a third party?
- you qualify for Business Relief immediately on those assets do not need to survive the inheritance by 2 years for your family to claim Business Relief on the assets
56
Is business relief is available on lifetime or death transfer of qualifying assets or both
both
57
What are the two rate for business relief based on the nature of the business property?
100% relief - for interests in unincorporated businesses (i.e. sole traders and partnerships) - shareholdings in unlisted and AIM quoted companies (EIS normally qualify but VCTs do not) 50% relief - controlling shareholdings in fully listed companies - land, buildings, plant or machinery used in a company or partnership
58
Do we include assets in cumulation that are liable to 100% business relief?
- yes, assets are added to the cumulation, then relief of 100% of their worth is deducted later
59
What are the assets what are not eligible for Business Relief?
- businesses that aren't traditional 'trading companies' and consist, wholly or mainly, of dealing in securities, stocks or shares, land or buildings, or making or holding investments - if the business is subject to a binding contract of sale - disregarded assets include those not used in the business in the previous 2 years, or those not required for future use in the business at the time of the transfer
60
What includes agricultural property now includes property in?
- the UK, Channel Islands, Isle of Man and the EEA
61
What agricultural property consists of?
- agricultural land, growing crops and farm buildings
62
What agricultural property does not include?
- animals or equipment
63
Is Agricultural Relief given on the agricultural value of the land or development value?
- agricultural value
64
What are the conditions of length of ownerships apply regarding agricultural relief?
- the property must have been occupied by the transferor for agricultural purposes for at least the previous 2 years - have been owned by the transferor for 7 years and occupied by someone else for agricultural purposes for that time
65
What are two rates for Agricultural Relief?
100% Relief - for owner-occupied farms - farm tenancies 50% Relief - interests of landlords in let farmland - this is increased to 100% for land let under tenancies that exceed 12 months and started after 31/8/95
66
What Woodland Relief applies to?
- growing timber in the UK or the EEA, not the land - only transfers on death
67
What is Pre-Owned Assets Tax charge?
- is an income tax charge and is charged on the benefit that individuals get from having free or low-cost enjoyment or use of certain assets that an individual previously owned or they provided the funds to buy
68
What include assets that may be caught by Pre-Owned Assets Tax?
Land, including living accommodation - the cash value is based on market rental values - this is revalued every 5 years Chattels, such as pictures and antiques - the cash value is usually a % of the capital value - the % in 2024-25 is the official rate of 2.25% - this is revalued every 5 years Intangible assets in a settlement where the settlor retains an interest - typically, this is likely to be a life assurance policy - the cash value is calculated in the same way as for chattels
69
What is the cash value of benefit that must exceed in a tax year before any income tax is charged regarding?
£5,000
70