Overview of IHT position for client

Question 1

Client wants overview of IHT position - summarise the regime

Answer 1

• IHT is charged on the value of assets transferred on death, or in the 7 years prior, unless an exemption or relief applies to the transfer
• The first £325,000 worth of transfers chargeable to IHT are taxed at 0%. This is called the Nil Rate Band
• A further £175,000 is charged at 0% if the deceased owns a qualifying residential interest (their home) and this is passed to lineal descendant (child or grandchild), known as the RNRB
• The RNRB tapers by £1 for every £2 above £2million [only explain if client has large estate]
• There is also Transferred NRB / RNRB if pre-deceased spouse did not use theirs

Question 2

Explain what IHT calculation means for the client

Answer 2

1. Calculate the value of the assets - based on the valuation given by the client
   - check whether these are appox. valuations or have been valued
2. Determine the value of estate
   - If above £2.35million - RNRB is not available
   - IHT charged at amount exceeding £325,000 at 40%
3. Calculate - as things stand, how much IHT expected to pay?

Question 3

How can a client minimise current IHT liability?

Answer 3

• Exemptions and reliefs
• Make use of RNRB (if leaving home to a child/grandchild)
• Note which exemptions/reliefs are applicable to the client’s situation and advise accordingly

Question 4

Advise on making lifetime gifts

Answer 4

• Ask client if they are considering making large gifts during their lifetime to any individuals?
• Advise that these gifts will be PETs - the transfer is exempt if the client lives for 7 years after making it
• The client might consider making PETs if they currently have a large estate over £2million, to bring the value down so they can claim RNRB

Question 5

Issues with a GROB for a client?

Answer 5

If the proposed plan amounts to a GROB (as it constitutes retaining a benefit), this has NO IHT benefit

• Instead, should make gifts which the client does not retain benefit in, such as cash

Question 6

Limits on advice to a client on IHT planning

Answer 6

Cannot give specific advice about how much to give away or how best to structure their assets - this is a matter for a financial advisor