Inheritance tax Flashcards
(70 cards)
What is inheritance tax?
- a tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime
What are the four types of transfers of property?
- exempt
- potentially exempt
- chargeable
- death transfers
What are the main exempt transfers?
- 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
What is annual exemption for current tax year?
- £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
What is the value of small gifts exempt per recipient per tax year?
- £250
What gifts in consideration of marriage can be exempt up to certain value?
- each parent can gift £5,000
- grandparents, each £2,500
- bride or groom £2,500
- any other person can gift up to £1,000
What gifts can be made to charities and political parties to be exempt?
- 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
What is the value of gifts exempt regarding gifts for education & maintenance?
- unlimited gifts for spouse or civil partner, or in respect of children
What are major political parties?
- those with at least 2 MP’s or 1 MP and the party received at least 150,000 votes
What can be exempt gifts or payments out or normal expenditure?
- 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
What are the exempt transfer lifetime only?
- annual exemption
- small gifts
- gifts in consideration of marriage
- gifts for education and maintenance
- gifts or payments out of normal expenditure
What are the exempt transfer lifetime and on death?
- transfers between spouses & civil partners
- gifts to charities & political parties
- gifts for the national benefit
What happens if spouse is non-UK domiciled and what is the current non-domicile exempt transfer limit?
- transfer has a limit, £325,000
PET are transfers made by an individual to:
- another individual
- a bare trust
- a disabled trust
When PET will become exempt form IHT?
- if donor survives for seven years after making the transfer
When PET will become chargeable transfer?
- if the donor dies within seven years
If PET transfer was made during donor’s lifetime, what can reduce the value of the gift for IHT purpose?
- the annual exemption
What could be a good example of chargeable lifetime transfers?
- transfers to discretionary trusts
- Interest in Possession trusts
What are the consequences of making a transfer that is classified as CLT?
- 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
What are the examples of excluded property what are excluded from the residual estate which is subject to IHT
- 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)
What are ineffective transfers?
- are those that do not remove the property from the donor’s estate for IHT purposes
- known as ‘gifts with reservation’
What is the most common example of ineffective transfers?
- 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
How are IHT transfers valued?
’ loss to the estate’
In what circumstances losses to an estate can be evidenced and be charged to IHT?
- 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