Key principles

Question 1

What transfers are ignored for IHT purposes?

Answer 1

1. Sales at arm’s length
2. Maintenance of family
3. Waiver of right to renumeration or dividends

Question 2

Calculate related property (non shares)

Answer 2

A/(A+B) x CV

A= Value of donor asset in isolation
B= Value of related property valued separately

CV= Value of both portions combined

Question 3

Calculate related property (shares)

Answer 3

Jim has 6,000. Barbara has 3,000. Total is 10,000

To calculate RPV:

6,000/9,000 x value of joint holding (ie 9,000 x £12 each)

Do the same after the gift.
Loss to donor principle

Question 4

Exempt transfers include?

Answer 4

• Spouses (limited to 350k if abroad)
• UK charities
• Political parties, clubs

Gifts to special trusts
1. charitable
2. bare
3. disabled

Question 5

Lifetime tax is due at later of?

Answer 5

1. Six months from end of month of gift
2. 30 April in following tax year

IHT form 100 must be submitted within 12 months of end of month of transfer

Question 6

If donor pays tax on lifetime transfer, the rate is…

Answer 6

20/80

*For cumulation purposes we identify the GROSS gift

Question 7

Taper relief available if there are more than X years between gift and death

Answer 7

Three

Question 8

What qualifies for 100% BPR?

Answer 8

1. Sole trade business and partnership shares
2. Shares in UNQUOTED trading company

Question 9

What qualifies for 50% BPR?

Answer 9

1. Quoted trading company shares of more than 50%
2. Land/building/machinery used by a company controlled by donor or partnership

Question 10

BPR is restricted if company holds ‘excepted assets’. Amount qualifying is…

Answer 10

Gift x [(total assets - excepted assets) / Total assets]

Question 11

For APR and BPR they must have been owned for…

Answer 11

TWO years before gift

or Seven years for tenanted APR land

Question 12

APR is 50% where?

Answer 12

Property is tenanted

Pre 1 Sep 1995 lease and

Lease has more than 2 yrs to run at date of transfer

Question 13

APR and BPR on death where:

Answer 13

1. Donee has retained asset as relevant bus property or
2. Sold asset but reinvested ALL SALES PROCEEDS within 3 yrs in replacement

Question 14

Fall in value relief (made within 4 years of death)

Answer 14

Difference between value of asset at date of gift and value at death/ gross sale proceeds

Question 15

What is deductible from the death estate?

Answer 15

1. Liabilities inc mortgages, bills etc
2. Funeral expenses (reasonable)
3. Cost of administering foreign property (up to 5%)

Question 16

Death estate:

Answer 16

Assets
(Liabilities)

Net value
(Exempt legacies - charity or spouse)

Chargeable estate
NB at death
(CT in prior 7 yrs)
NB remaining

Taxable estate

Question 17

IHT on death is due on EARLIER of:

Answer 17

1. 6 months from end of month of death
2. Submission of IHT return (IHT 400)

Question 18

Quoted shares are valued at lower of:

Answer 18

1. Quarter up from bid price
2. Average of bargains

Question 19

Unit trust units valued at?

Answer 19

Bid price

Question 20

Quick succession relief formula:

Answer 20

IHT paid on prior transfer x QSR % x Increase in donee estate as result of 1st transfer / Increase + IHT paid

Question 21

Tax free Vs Tax bearing for QSR

Answer 21

Tax free = someone other than donee bears IHT (UK assets)

Tax bearing = donee bears IHT due (Non UK assets)

Question 22

Post mortem relief reduces the ?

The allowable loss is?

Answer 22

Death estate

Probate value LESS gross sale proceeds

Question 23

The pre owned assets rules impose an INCOME TAX CHARGE on benefits received.

It is imposed where…

Answer 23

1. Former owner benefits from asset previously owned
2. Not a GWROB

Question 24

What are the POAT charges in the case of:

1. Land
2. Chattels

Answer 24

1. Annual rental value
   (payments made by donor are deductible)
2. Value of chattel x HMRC ORI (2.25%)

*no income tax charge if not exceeding £5,000

Question 25

If an individual is caught by POAT rules, they can elect that:

Answer 25

- No income tax charge - Instead GWROB so forms part of estate for IHT

Question 26

UK domicile liable to IHT on... Non UK domiciled liable to IHT on ...

Answer 26

Worldwide assets UK assets only

Question 27

Deemed domicile if either of these apply: 1. 2. 3.

Answer 27

1. Domiciled in UK under general law in past 3 yrs 2. FDR (born with UK dom of origin)* 3. resident in UK for at least 15/20 tax years** *only if UK resident in at least 1 of 2 tax years immediately before transfer **only if UK resident in 1 of 4 tax years ending with year of chargeable transfer

Question 28

Who needs to file returns for: 1. CLT 2. Chargeable PET 3. Death estate

Answer 28

1. Donor (IHT 100) 2. Donee (Unless reported by executors) 3. Executors (IHT 400) Usual due date is 12 months from end of month of transfer.

Question 29

Reasons for establishing a trust:

Answer 29

- Retention of control - Tax advantages - Guarantee succession of property - Conceal beneficial ownership of property

Question 30

How is the settlor taxed on the creation of a trust?

Answer 30

CLT CGT disposal at MV Gift relief usually available, reducing base cost of assets transferred for trustees

Question 31

Beneficiaries - Income tax on trust income distributed 1. Interest from IIP 2.Dividends from IIP 3. All income from discretionary

Answer 31

1. Gross up x 100/80 Tax in savings column 20% repayable tax credit 2. Gross up x 100/91.25 Tax in dividend column 8.75% repayable tax credit 3. Gross up 100/55 Tax in NS column 45% repayable tax credit

Question 32

Income tax on IIP applying to TRUSTEES *No PA,SA,DA

Answer 32

Flat rates 20%,20%,8.75% No relief for trust management expenses. Expenses relating to source of income are deductible (ie letting fees against property income) Life tenant receives tax deduction certificate (R185)

Question 33

Income tax on Discretionary applying to trustees

Answer 33

RAT 45%,45%,39.35% Any income used for expenses is grossed up ie 100/91.25 Beneficiary receiving distribution is deemed to receive income net of a 45% tax credit. The grossed up distribution is treated as NS income.

Question 34

What is the tax pool?

Answer 34

To ensure that trustees have paid sufficient tax for the beneficiary to be entitled to a 45% credit, a running total of tax paid and tax credits on distributions to beneficiaries is maintained. All tax paid can enter the pool.

Question 35

Key elements of a trust for a bereaved minor:

Answer 35

1. Created under rules of intestacy or will 2. must give absolute interest in capital and income at age 18 3. No IHT charges during life of trust or when beneficiary becomes entitled

Question 36

Key elements of age 18-25 trust

Answer 36

1. Created on death by will 2. Must give absolute interest in capital and income at age 25 3. Never any principal charges 4. Exit charges only apply if entitled to property after age 18. Amount of tax is: chargeable amount x Actual rate (%) Actual rate = effective rate x 30% x n/40 Chargeable amount = value of trust property at date of event

Question 37

IIP created before 22 March 2006 is 'qualifying IIP' which means: It is a PET * An IIP created on death on or after date above (immediate post death interest) is qualifying IIP

Answer 37

1. Assets treated as forming part of death estate 2. Tax calculated on total chargeable estate is apportioned between 'free estate' (tax paid by executors) and 'qualifying IIP (tax paid by trustees). QSR available pre apportionment

Question 38

Creation of IIP after 22 March 2006 is a : CLT

Answer 38

1. Chargeable unless to spouse then exempt 2. Subject to principal and exit charges

Question 39

Give 3 common exempt assets for CGT :

Answer 39

1. Cars 2. Gilts 3. Wasting chattels

Question 40

What is the allowable cost in a part disposal ? Formula

Answer 40

A/(A+B) x acquisition cost A= gross proceeds B= value of part retained

Question 41

CGT on the settlor of a trust 1. What is the trustees base cost if gift relief used? 2. Gift relief claim by who and what date?

Answer 41

MV at date transfer (Gain deferred under gift relief) Base cost Claim made by DONOR, consent by trustees not required. Within 4 years after end of tax yr in which assets transferred.

Question 42

CGT for trustees on disposal or distribution of assets. AEA amount is :

Answer 42

AEA of £1,500 divided by number of UK trusts. Minimum is £ 150

Question 43

CGT for trustees BADR principles are:

Answer 43

1. Only available where beneficiary has an IIP Most common for trust is shares in a trading company (no min holding) *The life tenant must have owned 5% or more and worked for company throughout a period of 2 years ending within 3 years up to date of disposal. 2. Relief must be claimed jointly on or before 1st anniversary of 31 January following tax year of disposal

Question 44

Does BADR exist for discretionary trusts?

Answer 44

No

Question 45

Trustees giving asset to beneficiary is a DISPOSAL AT MV for CGT! Gains arising can be deferred if:

Answer 45

1. Distribution is chargeable transfer for IHT 2. Asset transferred is business asset for CGT *if a disposal for CGT purposes results in IHT being paid, the IHT is deductible in calculating the gain on the disposal of the asset by the donee

Question 46

Settlor interested trusts = whole trust income arising is taxable on the settlor. Key points are:

Answer 46

1. Income will be taxed at settlor's marginal rate with benefit of credit for tax paid by trustees 2. Any tax refund must be paid to trustees 3. Additional tax payable can be reclaimed by settlor from trustees

Question 47

Trusts for children s.629

Answer 47

1. Must be under 18 2. Settlor is only taxed on income distributed 3. Therefore trust income which is accumulated is not taxed on settlor

Question 48

CGT for settlor interested trusts Key points

Answer 48

1. No gift relief available 2. Clawback of gift relief if trust becomes settlor-interested within 6 years

Question 49

Key principles of an estate in administration

Answer 49

1. Basic rates used 2. No relief for expenses incurred in executors managing estate 3. No PA For CGT: 1. Assets deemed acquired at probate value 2. Executors liable to CGT on disposals (full AEA). Gains at 20% and 24%