Inheritence Tax

Question 1

What is the Loss to Donor rule?

Answer 1

Whether a transfer is chargeable is whether the gift/transfer reduced the value of the estate.

Excluding bad deals!

Question 2

Who is liable to IHT?

Answer 2

1. non-UK domiciled individual on the transfer of any UK assets only.
2. UK domiciled individual on the transfer of any worldwide assets.

Question 3

What exemptions are available on the occasion of a lifetime gift on marriage?

Answer 3

£5000 - from parent

£2500 - from bride/groom/grandparent

£1000 - from anyone else

Question 4

What is the annual exemption to reduce IHT on lifetime transfers?

Answer 4

£3000

Can use last years as well if it went unused. So could total to £6000

Question 5

What is a potentially exempt transfer?

Answer 5

a gift from one individual to another individual

exempt from IHT while donor is alive BUT if donor dies within 7 years it will become chargeable.

Recipient to pay the tax!

Question 6

How can you carry forward annual exemption for lifetime transfer?

Answer 6

Must use current years’ exemption first and then last years exemption. means that you can’t carry this years to next year!

Question 7

What are Chargeable Lifetime Transfers? Provide three examples.

Answer 7

Lifetime gift that is NOT exempt or potentially exempt and is immediately chargeable to IHT.

1. Gift to discretionary trust
2. Gift to interest in possession trust
3. Gift to company

Question 8

What is an interest in possession trust?

Answer 8

Trusts where the trustee must pass on all trust income to the beneficiary as it arises (less any expenses).

Question 9

What tax rate is applicable to CLTs?

Answer 9

If paid by trustees - 20%

If paid by donor - 25%

Question 10

How is tax payable by donor for CLT calculated?

Answer 10

• *25% tax** is owed only if the net gift exceeds the nil rate band in the year of gift, less any
• *gross chargeable transfers in the prior seven years** to this gift and after deducting any available annual exemption.

Question 11

When is taper relief available against IHT?

Answer 11

It is available on any PETs and CLTs that were made more than three years prior to death

Question 12

What is business relief for IHT?

Answer 12

Business relief reduces the value of property given as a lifetime gift.

Relief is given before annual exemption and is given automatically.

Reqs:

• Must be trading (non investment!)
• Must have owned the property for 2 years
• Overseas shares are eligible

NB there is 50% and 100% relief

Question 13

What property is eligible for 100% business relief for IHT?

Answer 13

• Sole-trade business or partnership interest
• shares in unlisted company (no min number of shares!).

MUST HAVE OWNED FOR 2 YEARS

Question 14

What property is eligible for 50% business relief for IHT?

Answer 14

• Shares in quoted (listed/public) company IF donor has 50% or more of ordinary shares
• Land or buildings or plant and machinery owned by individual and used by partnership or company they control.

Question 15

What is Agricultural Relief and when is it available?

Answer 15

• Available for lifetime and transfers on death
• Usually 100% property value reduced
• Activities are excluded - eg fishing, shooting, grazing horses.
• Either occupied for 2 yrs before transfer, OR if landlord, owned for 7 years.

Question 16

If 10% of estate is gifted to charity, what IHT is payable on the rest?

Answer 16

36% rather than 40%

Question 17

How does the transferability of nil rate bands operate?

Answer 17

• The unused proportion of an individual’s nil rate band can be transferred to their
• *surviving spouse on their death.**
• It is possible to transfer unused nil rate band from up to two spouses, but no more
• *than two times the nil rate band** in the year of death may be used.
• The transferable nil rate band can be used in any death tax calculation but not when
• *calculating the lifetime tax on CLTs**

Question 18

When is residence nil rate band available? When is it limited? And how much is it?

Answer 18

£175000

• Available IF the residence or proceeds are left to lineal descendant. Children, grandchildren, or spouse of descendants.
• tapered above £2m
• Can transfer to spouse!

Question 19

What is Quick Succession Relief and when is it available?

Answer 19

Given when an individual’s estate increased with a chargeable transfer within the last 5 years.

IHT was paid on the chargeable transfer, and IHT is therefore not required in full upon death. Reduced by complicated formula.

Question 20

How are gifts with reservation of benefit treated under IHT?

Answer 20

When S puts house in child’s name but continues to live in it…

Treated as part of the death estate.

Taxed as if the donor still owns it at death.

Question 21

When is IHT due for a CLT?

Answer 21

The later of six months from the end of the month in which the CLT was made and 30
April after the tax year in which it was made

Question 22

Who is legally required to pay a lifetime tax on a CLT.

Answer 22

Transferor

Question 23

In what circumstances is a gift to a spouse exempt from IHT?

Answer 23

ALWAYS - unless the recipient spouse is not UK domiciled (in which case only the first £325,000 is exempt).

Question 24

What is an excepted estate for IHT purposes?

Answer 24

An estate that does not have to file formal IHT account

To be excepted, the estate’s total gross value plus specified transfers cannot exceed either

1. the inheritance tax threshold, currently £325,000, or
2. £1 million if the net chargeable estate does not exceed the threshold.

In addition, an estate can be excepted only if no more than £100,000 of the deceased’s property is situated outside the UK.

Question 25

If tax paid on lifetime gift exceeds tax payable on the same gift at death, is it recoverable?

Answer 25

NO - difference will not be repaid.