Tax planning and anti-avoidance

Question 1

How may clients mitigate the risk of a PET becoming chargeable if they die within 7 years?

Answer 1

taking out fixed term life assurance to cover cost of IHT on the PET

Question 2

Why should assets which will increase in value be favoured when giving PETs?

Answer 2

They are charged on their value at transfer not DOD

Question 3

What is the parental settlement rule?

Answer 3

transfer to unmarried minor child treated as parent’s property for income tax

Question 4

Who are exempt beneficiaries in wills?

Answer 4

spouses/civil partners
Charities

Question 5

What consideration should be made when making a specific gift of qualifying business/agricultural assets?

Answer 5

Specific gifts to exempt beneficaries will waste the APR/BPR

Question 6

How may APR/BPR be claimed on a specific gift to an exempt beneficiary?

Answer 6

Made into a discretionary trust

Question 7

What consideration should be made when making a gift of residue of qualifying business/agricultural assets?

Answer 7

APR/BPR dont attach but are apportioned, may be wasted if apportioned to exempt beneficiary

Question 8

How can bunching be avoided?

Answer 8

• Can make gifts to children or others
• Leave into discretionary trust so not included in estate when survivor dies

Question 9

Is a trust under a will a separate legal entity?

Answer 9

No

Question 10

When does a will trust come into existence?

Answer 10

DOD

Question 11

What is a discretionary will trust?

Answer 11

To group of beneficiaries
No fixed rights to assets
Trustees have full discretion

Question 12

What is a life interest trust?

Answer 12

benefit of life tenant and remainderman

Question 13

Is there any immediate tax saving for a testator making a discretionary will trust?

Answer 13

No

Question 14

What is the tax saving for discretionary will trusts?

Answer 14

Beneficiaries not taxed on assets when they die

Question 15

What is the effect of a 2 year trust?

Answer 15

distributions made within 2 years treated as under will

Question 16

Can RNRB be claimed for property left into discretionary trust?

Answer 16

No

Question 17

Can the spouse exemption apply to life interest will trusts?

Answer 17

Yes if they are the life tenant

Question 18

which loans are restricted from being deductible for IHT?

Answer 18

• Loans to acquire, maintain or enhance BPR assets
• Loans not repaid from the estate
• Loans to acquire, maintain or enhance excluded property
• Loans which fund qualifying foreign currency account

Question 19

How should loans to acquire, maintain or enhance BPR assets be treated?

Answer 19

Set off against qualifying assets first

Question 20

What are the two circumstances in which a transfer may be treated as a GROB?

Answer 20

1. Donee does not assume ‘bone fide possession’ of the property at or before the start of a relevant period
2. At any time in the relevant period, the property is not enjoyed to the entire exclusion or virtually entire exclusion of the donor and of any benefit to him by contract or otherwise

Question 21

What is the relevant period for a GROB?

Answer 21

7 years prior to death

Question 22

What is bona fide possesion?

Answer 22

• Obtain a vested beneficial interest
• Have actual enjoyment
• Assume possession and enjoyment at start of relevant period

Question 23

When may a gift into trust be a GROB?

Answer 23

Where they are the potential beneficiary

Question 24

What is the tax effect of a GROB?

Answer 24

a) If subsists at DOD – treated as part of donor’s estate
b) If no longer – treated as PET made on date reservation ceased (no Annual Exemption)

Question 25

What is the pre-owned assets charge?

Answer 25

annual income tax charge on giving away certain types of property during lifetime but subsequently obtaining a benefit

Question 26

What property does POAC apply to?

Answer 26

• Land
• Chattels
• Intangible property in settlor-interested trust

Question 27

When is land subject to POAC?

Answer 27

o Individual occupies land
o Disposal condition or contribution condition is met (without obtaining beneficial interest)

Question 28

What is the effect of POAC?

Answer 28

benefit treated as income so income tax payable at market rent value

Question 29

What is the tax effect of a settlor interested trust POAC?

Answer 29

Calculated by reference to official interest rate payable on the settled property

Question 30

What are the excluded POAC transactions?

Answer 30

o Transfer to spouse/civil partner
o Family maintenance
o Annual and small gifts
o Arms length sales
o Occupation 7 years after cash gift