Osborne 7: IHT

Question 1

(First intuition)

How often does the £325K ‘reset’

Answer 1

ie can give away 325K exery 7 years

Question 2

Whats the marriage exemption?

Answer 2

£5000 from parent.
(Can be each parent)
£2500 grandparent
£2500 from the couple (to each other?)
£1000 (from anyone else)

Question 3

IHT ‘lifetime’ rate

Answer 3

20% if trust pays

25% if doner pays

Question 4

FI:

Can the £2500 grandparent marriage allowance apply to a legacy?

Answer 4

No its a ‘lifetime’ allowance

Question 5

CLT
Chargeable Lifetime transfer

PET
Potentially exempt transfer

Answer 5

.

Question 6

Need to check about the £3K annual…
I know you can b/f last years … but can you..
give £3K and elect to use last years so that you can carry fw this years???
Or do you have to use this year’s first?

Answer 6

.

Question 7

CGT 3K exempt amount

what to remember?

Answer 7

Can c/f one year but must use current year first.
(ie. If you give nothing one year and then 3k the next you cannot ‘use’ last year’s and c/f this year’s)

Unlike the £250 allowance this can be ‘deducted’ from an amount that is larger than £3K

Gift to a trust is a CLG but you can use the 3K exempt amount towards this gift

Question 8

CGT £250 gifts

what to remember?

Answer 8

It’s up to £250 only … cannot deduct that amount as exempt from a larger amount..

Question 9

Danny is married to Sandy and they jointly own a house with 50% ownership each. Danny dies in June when the property value is 200K .
The value of the property in his death estate is ?

Answer 9

£nil

‘Jointly own’ is referring to a joint tenancy where on death the property automatically passes to the other person.

NB it passes to Sandy and is exempt because she is spouse. If jointly owned with a sibling or other person it would pass to them but there would be IHT (depending on value of estate, nil rate band etc)

(tenants-in-common each own a specified share)

Question 10

RNRB

Answer 10

Residence nil rate band

Even if spouse died before this existed they still get the RNRB through the spouse estate,

Question 11

Gross Chargeable Transfer

How to handle ?

Answer 11

If less than 7 years it goes against nil rate band

Question 12

IHt can apply to estate of someone died and also sometimes to gifts during life … what are these ?

Answer 12

Transfers.

Transfers on death or Lifetime transfers

Question 13

UK domiciled

How taxed on property?

Answer 13

IHT on property anywhere in the world

Question 14

nonDoms

How taxed on property?

Answer 14

IHT usually only on UK property.

But in certain circumstances can ELECT to be treated for IHT as if uk domiciled )not sure why you would?)

Question 15

The domiciled/ nonDom rues for IHT and CGT are similar

Answer 15

.

Question 16

Types of Transfer ?

Answer 16

1. Exempt transfers - life or death
2. Chargeable lifetime transfers - life
3. Potentially exempt transfers - life
4. Transfers on death - death

Question 17

Exempt transfer

Answer 17

Not chargeable to IHT

Can be excluded from calculations

Some types of exempt transfer only relate to lifetime transfers, while others could be made either during the lifetime or at death

Question 18

Chargeable lifetime transfers

CLTs

Answer 18

Subject to IHT as soon as they are carried out.

Those that exceed the cumulative tax threshold (or NRB) of £325K will involve payment of IHT.

The main category of CLTs are transfers t specific trusts

Question 19

Potentially exempt transfers

PETs

Answer 19

Lifetime transfers that will be Exempt from IHT if the donor lives at least 7 years after gift made.

ALL lifetime gifts except ETs and CLTs are PETs

Question 20

Transfers on death

Answer 20

When individual dies their ‘estate’ is made up of

Assets minus liabilities & funeral expenses.

On death the individual is treated as making a final transfer of the whole of his or her estate.

Question 21

assuming no LTs how to calculate IHT

Answer 21

1. Take value of estate
2. Deduct exempt transfers (usually through bequests)
3. Deduct tax threshold of £325k
4. Calc IHT 40% on any balance

Question 22

Exempt transfers on death

These are also exempt if made as gifts during lifetime

Answer 22

1. UK DOMICILED spouse (or Civil partner)
2. Charity, museum, university, amateur sports club
3. QUALIFYING political party
4. Transfer of LAND to housing association

Question 23

RNRB

what 2 detail to remember

what amount

when deducted

Answer 23

• individual must have used as his or her residence.
• nil rate band can be passed to spouse even if didn’t own a home. its amount is ‘set’ by 2nd death

Lower of

• Value of house or SHARE of it that direct d’s inherit
• £175K (2020/21)

Deducted in the calc of IHT on death just BEFORE main NRB is applied. It cannot apply to lifetime transfers

Question 24

Lifetime exempt transfers - 6

Answer 24

1. The 4 that are exempt in death (S,Scum,qPP,L2ha)
2. Up to £3K of gifts (annual exemption)
3. Small gifts up to £250 per person
4. Marriage gifts (5k; 2.5k, 2.5k, 1k)
5. Regular gifts out of income to anyone (w/o affect LS)
6. Payments to help living costs of ex-spouse,dependent rely old or ill; child

Question 25

Chargeable lifetime transfer

Answer 25

Pay 20% on amount exceeding NRB immediately. (This is cumulative but resets every 7 years) (Can deduct annual allowances first where applicable) If death within 7 years affects NRB & pay another 20% receiver pays (usually trust) i don't think need to consider taper?

Question 26

PET how to identify, how to deal with

Answer 26

If its not a CLT or an ET its a PET if live 7 years PET becomes ET if less than 7 yrs add it back in ... if PET exceeds NRB recipient is liable for the 40% tax Note that the PET uses up the NRB but the estate doesn't end up paying IHT on PETs because after NRB is used the recipient is liable. so estate can only ever be taxed at 40% of the estate,

Question 27

Gifts at death to charity

Answer 27

1. Calculate net estate: * Take total estate * Deduct OTHER exempt transfers (spouse, sports club etc?) but NOT the donation. * Deduct NRB & RNRB Check what 10% of net estate would be and see if donation exceeds in which case IHT becomes 40%

Question 28

Normal due dates for IHT CLTs up to 30 September (ie first 6 months of tax year including April)

Answer 28

by 30 april in following calendar year

Question 29

Normal due dates for IHT CLTs after 30 september

Answer 29

6 months after EOM | so basically same deadline for the october?

Question 30

Normal due dates for IHT Transfers on Death

Answer 30

6 months after EOM death occurred. includes additional tax due on CLTs & PETs that have become chargeable

Question 31

Be careful calculating what amount someone inherits!!

Answer 31

Remember need to go back to beginning as first calc is just to work out tax.. Go back and deduct the bequests and the tax only (not the NRB!!!)

Question 32

1. Work out remaining NRB NRB minus CLTs and PETs but look out for exemptions ``` 2. Work out IHT Start with Total estate Deduct exempt items Deduct RNRB(s) & NRB(s) Calculate tax ``` 3. If needed work out amount received (ie. total estate minus bequests & tax .. remember if NRB was exceeded by PETs the pet recipient pays

Answer 32

.

Question 33

Can a person who always lived abroad and not domiciled here ever pay iht here?

Answer 33

May be subject to iht on assets held in uk

Question 34

Chargeable lifetime transfer 25% tax where donor pays tax 20% tax where trust pays tax

Answer 34

.

Question 35

Kaplan A person who is Non-Dom is subject to IHT on UK assets only. The concept of residence is not relevant for IHT purpose

Answer 35

.

Question 36

need to know due dates. CLT Transfer on Death

Answer 36

CLT: 30th April if it was in first 5 months of tax year EOM + 6 months if in last 7 months of tax year Transfer on Death: EOM + 6 months

Question 37

allowed deductions from estate grocery bill - deductible as incurred for consideration. mortgage - deductible , will be set against value of house primarily (does this affect the RNRB?) HMRC - income tax to death - deductible as legally enforceable. Illegal gambling debt - not deductible as not enforceable by law

Answer 37

. It seems the case that if there is a mortgage on the property you can only set the RNRB against the equity. eg the property is worth £300K but there is a £150K mortgage ... you then 'lose' £25K of RNRB I dont think this will come up in exam

Question 38

Dont remember this from osborne but there is a BPP question about giving away shares and valuing them for IHT On date of transfer the shares were valued at 250-280p with marked bargains of 252, 276, 264 & 279. How to do this?

Answer 38

LOWER of 1/4 up: 250 + (280-250)/4 =257.5 Average: (252+279) / 2 =265.5

Question 39

If give birthday present of 200 and then xmas present of 250 to same person ... how much is exempt?

Answer 39

None!! If you go over the 250 the whole lot is taxable (unlike staff partys)

Question 40

to check whether iht can be 36%

Answer 40

Most donate 10% of net estate. Start with Estate value Deduct OTHER exemptions. This is the net amount ... check if donation is >10% If it is then start again but this time DO deduct the donation with the other exempt items (left to spouse, sports club) Only diff is now you know you can change 40% to 36% for the tax calc

Question 41

PET then CLT PET - no lifetime IHT, ignore NRB CLT - full NRB available use b4 20% tax after death though PET first so if now chargeable it uses NRB first

Answer 41

.Tricky If make 2 CLTs within 7 years Life IHT on the second is whatever NRB left after 1st CLT. But even if death is >7 years after 1st CLT 1st CLT - no extra tax at death BUT it still uses the NRB so you still list it and use NRB before moving to 2nd CLT Unlike PETS which drop off the radar after 7 years