Tax/Solicitor Accounts Flashcards

Question

What are the conditions for BPR

Answer 1

Asset must be business property Owned for at least 2 years Trading as a business not investing No binding contracts for sale at time of transfer

Answer 2

Gifts to spouses and charities

Answer 3

Trusts at 20%

Answer 4

Yes £3000 per year Can only carry over one year

Answer 5

£250 per person

Answer 6

Within 6 months from the end of the month of death

Answer 7

The recipient of the gift

Answer 8

Statutory rule to stop tax avoidance using the double reasonableness test

Answer 9

Would a reasonable person consider that the arrangement cannot reasonably be regarded as a reasonable course of action

Answer 10

Yes if the donor pays full market value for continued use

Answer 11

An excepted estate is one where the personal representatives do not need to submit a full Inheritance Tax (form IHT400) There are generally three types of excepted estates: * Low value estates: Where the gross value of the estate (including assets held jointly and gifts made within the last seven years) is below £325,000 * Exempt estates: Where the majority or entirety of the estate is passing to a spouse, civil partner, or a charity, meaning there is no Inheritance Tax to pay, and the gross value does not exceed £3 million * Estates of non-UK domiciled individuals: Where the deceased was domiciled outside the UK and had limited UK assets (below £150,000).

Answer 12

A non-excepted estate is any estate the personal representatives are required to complete and submit a full IHT (form IHT400) Some situations that would typically result in a non-excepted estate include: * The value of the estate is above the relevant thresholds for a low-value excepted estate. * Inheritance Tax is payable on the estate (even if below the low-value threshold). * The estate includes assets in trust exceeding certain limits. * The deceased made a gift with reservation of benefit that still existed at the time of death or within seven years before death (unless it was a specific type of exempt transfer). * The deceased held an interest in possession in more than one item of settled property.

Answer 13

Cash sheet

Answer 14

Client/profit costs/HMRC-VAT DR CL BA / CR PC / CR HMRC-VAT £1200 £1000 £200

Answer 15

Client/profit costs/HMRC-VAT CR CL BA / DR PC / DR HMRC-VAT £1200 £1000 £200 OPPOSITE TO BILL PAYING

Answer 16

Output tax - on services they charge Input tax - on business they pay

Answer 17

Every quarter

Answer 18

When a firm pays VAT on goods and services it purchases

Answer 19

When a firm charges the client for services

Answer 20

Output tax less input tax = either owes HMRC or HMRC owes the business

Answer 21

It only applies to lifetime transfers

Answer 22

Firm liable for VAT, it must pay the invoice cannot record VAT payable by the client On the client business ledger as a debt until invoice sent to c for payment

Answer 23

The value of the estate is above £325,000 but less than £3million and after exemptions falls below the NRB

Answer 24

In the context of UK Inheritance Tax (IHT), "lifetime chargeable transfers" are a crucial concept for estate planning. They refer to certain gifts or transfers of value made by an individual during their lifetime that are immediately subject to IHT, unlike "Potentially Exempt Transfers (PETs)" which only become taxable if the donor dies within seven years. Here's a breakdown of Lifetime Chargeable Transfers (CLTs) and how they fit into the broader picture of lifetime gifts and Inheritance Tax in the UK: What is a Chargeable Lifetime Transfer (CLT)? * A CLT is a gift or transfer of assets made during an individual's lifetime that is immediately chargeable to Inheritance Tax (IHT). * The most common example of a CLT is a transfer of assets into most types of trusts, particularly discretionary trusts. * While immediately chargeable, this doesn't necessarily mean tax is paid straight away. IHT is only payable on the amount of the CLT that exceeds the donor's available Nil Rate Band (NRB) (currently £325,000). * The tax rate for CLTs paid during the donor's lifetime is typically 20% on the amount exceeding the NRB. This is half the death rate of 40%. * CLTs are cumulative. Any CLTs made in the seven years before the current CLT will reduce the amount of NRB available for the new CLT. How do CLTs affect Inheritance Tax? * Immediate Tax Charge (if applicable): If the value of a CLT, when added to any other CLTs made in the preceding seven years, exceeds the donor's NRB, then IHT is due immediately on the excess at the lifetime rate of 20%. This tax is usually paid by the trustees of the trust, although the donor can choose to pay it. * Impact on Death (the 7-year rule and 14-year shadow): * If the donor dies within seven years of making a CLT, that CLT is "brought back" into the estate for IHT calculations at the time of death. * At this point, the CLT is reassessed at the death rate of 40%. Any IHT already paid at the lifetime rate of 20% is taken into account. * Taper Relief: If the donor survives for at least three years but less than seven years after making the CLT, the 40% death rate tax liability may be reduced by taper relief. The longer the donor survives within that 3-7 year window, the greater the reduction. * 14-year shadow: While the 7-year rule is key, there's also a concept of a "14-year shadow." When calculating the NRB available for a CLT, you must consider any CLTs made in the seven years prior to that CLT. If the donor then dies within seven years of the current CLT, the death estate's NRB calculation will take into account any chargeable transfers (failed PETs and CLTs) made in the 14 years before death. This is complex and often requires professional advice. * No Taper Relief on Immediate Charge: Taper relief only applies to the additional tax that might be due on death. It does not apply to the initial 20% tax paid at the time the CLT was made. Key Differences from Potentially Exempt Transfers (PETs): * PETs are outright gifts to individuals or bare trusts. They are not immediately taxable and become fully exempt from IHT if the donor survives for seven years after making the gift. If the donor dies within seven years, the PET "fails" and becomes a chargeable transfer. * CLTs are typically gifts into most types of trusts (other than bare trusts). They are immediately chargeable to IHT if they exceed the NRB, regardless of how long the donor lives. Common Exemptions and Allowances (apply to both PETs and CLTs where relevant): While CLTs are immediately chargeable, various exemptions and allowances can reduce or eliminate the IHT liability: * Annual Exemption: You can give away up to £3,000 each tax year without it being added to the value of your estate. Any unused allowance can be carried forward for one tax year. * Small Gifts Exemption: You can give gifts of up to £250 to any number of people in a tax year, as long as you haven't used another exemption on the same person. * Gifts on Marriage or Civil Partnership: Specific amounts are exempt for wedding gifts (£5,000 for children, £2,500 for grandchildren/great-grandchildren, £1,000 for anyone else). * Gifts between Spouses or Civil Partners: Unlimited tax-free transfers between spouses or civil partners if both are UK domiciled. * Gifts to Charities: Gifts to UK-registered charities are exempt from IHT. * Normal Expenditure Out of Income: Regular gifts made from your surplus income, provided they don't reduce your standard of living, are IHT exempt. Careful record-keeping is essential for this exemption. Understanding lifetime chargeable transfers is essential for effective estate planning in the UK, particularly when considering the use of trusts. Due to the complexities involved, it's always advisable to seek professional advice from a financial advisor or tax specialist.

Tax/Solicitor Accounts Flashcards

(52 cards)