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WAE Flashcards

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1
Q

What is the spouse’s entitlement under intestacy?

A

£322,000 and half the remaining residue of the estate and personal chattels

Cash is re-absorbed back into the estate.

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2
Q

What is the issue’s entitlement under intestacy?

A

The other half of the residue of the estate shared equally among issues

No spouse or issue ranking includes parents, siblings (whole blood and half-blood), grandparents, uncles & aunts (whole blood and half-blood), and the Crown Bona Vacantia.

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3
Q

What are the formalities needed for appropriation of the deceased’s share by the spouse?

A

Need writing within 12 months of grant of probate

If the house is worth too much, transfer money from their own bank account to make up the difference.

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4
Q

What is a statutory trust?

A

A substitution rule and contingency rule in the absence of a will

Look out for this term whenever someone dies intestate.

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5
Q

What is the assumption for the contingency limb regarding vested interest?

A

The interest becomes vested once a person reaches age 18, subject to the actual age stipulated in the will

If the contingency is not met, the trust continues.

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6
Q

What does the contingency rule/limb state?

A

Interest is contingent upon the issue reaching age 18 or as specified in the will provisions

If they fail, they must wait until that age to receive their interest.

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7
Q

What is the substitution rule/limb?

A

If the issue does not survive the deceased, their own issue may inherit under the substitution limb of statutory trusts

This applies to children, siblings, aunts/uncles, and s.33 WA 1837 implies the substitution limb in law.

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8
Q

What is the Power of Maintenance according to s.31 TA 1925?

A

Powers to apply and accumulate income for beneficiaries under 18

It also includes a duty to pay trust income to a beneficiary who is vested in possession.

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9
Q

What does the Power of Advancement cover?

A

The power to advance capital for any beneficiary with a vested or contingent interest in the capital of a trust fund

Can advance the whole of the beneficiary’s entitlement if appropriate.

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10
Q

What is the significance of a ‘significant gift’ to a solicitor in a will?

A

Triggers the need for independent solicitor advice

Recorded in an attendance note due to potential validity issues.

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11
Q

What are the validity requirements for a will?

A

Capacity, intention (general or specific), and formalities

Presumption exists for capacity and formalities regarding due execution.

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12
Q

What does the test for capacity involve?

A

Capacity at the material time to make wills based on impairment to soundness or understanding

Need capacity to both make and revoke a will.

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13
Q

What is the test for duress in will creation?

A

Coercion or pressure that overpowers the testator’s freedom of action

Appeals to ties of affection or pity for future destitution.

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14
Q

What are the formalities for due execution under s.9 WA?

A

Signed by the testator and witnessed by two or more witnesses present at the time

Must also be signed by each witness in the presence of the testator.

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15
Q

What special attention is needed for blind or illiterate testators?

A

An extra attestation clause is required

This is to maintain presumption of intention once the will is read aloud.

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16
Q

What must happen for alterations/amendments to be valid?

A

Signed and attested by witnesses, must read naturally

Must reference each amendment made by name.

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17
Q

What is the close class rule?

A

Closes once the first beneficiary has a vested interest

Starting point is when the first beneficiary becomes entitled in possession.

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18
Q

What is a claim under the IPDFA?

A

Failure to make reasonable financial provision

Claims must be within 6 months after death.

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19
Q

What is the deadline for variations under IPDFA?

A

Must be within 2 years

Applies to claims made by surviving spouses and others.

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20
Q

What is the significance of the NRB?

A

£325,000 for inheritance tax purposes

It establishes the threshold for tax liability.

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21
Q

What does the Downsizing Rule allow?

A

Applies to those who lack RNBR due to not having a QRI

It allows them to qualify under certain conditions.

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22
Q

What is the death rate for IHT?

A

40% value at the date of death

This rate applies to the estate value exceeding the NRB.

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23
Q

What is the exemption for charity in IHT?

A

If up to 10% of the estate is left to charity, the estate is eligible for a reduced tax rate of 36%

This encourages charitable donations.

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24
Q

What is the rule on life interests post-2006?

A

Only life interests for testamentary trusts are covered

This includes intermediate post-death trusts.

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25
What is the deadline for payment of IHT to HMRC?
Within 6 months ## Footnote IHT account must be given within 12 months.
26
What is the charity exemption threshold for property estate?
Below £3 million ## Footnote The charity exemption applies provided the property estate is below this threshold.
27
What are factors preventing a charity exemption?
* Reservation up to 7 years before death * More than one trust interest * Single trust interest > more than £250,000 * Foreign assets > more than £100,000 * Specified transfers > more than £250,000 * A claim for RNBR inhibits the exemption
28
What is the form number for reporting to the Probate Registry?
Form 400 ## Footnote Form C4 is used to make corrections.
29
What is the duty of executors regarding time?
Complete within the 'executor’s year' ## Footnote Executors are expected to act with reasonable time and due diligence.
30
At what age can a minor receive a valid receipt?
16 ## Footnote This is only applicable if there is a specific provision in the will.
31
How many trustees are needed if there are minor beneficiaries?
Two trustees ## Footnote Only one executor is needed, but two trustees are required.
32
What is the personal liability of PRs?
Any failure will result in personal liability ## Footnote There is an exception if the PR is only running the deceased's business temporarily.
33
What is the fee for a grant of probate?
£273 ## Footnote This fee is waived if the estate is below £5,000.
34
What is the priority order under NCPR 20?
* Executor * Trustee of residuary estate * Any other residuary or beneficiary under intestacy rule * PRs of any other residuary beneficiaries * Any other beneficiary or creditor * PRs of any other beneficiary or creditor in (5)
35
What is the deadline to object to a grant?
6 months ## Footnote An application must be lodged to the Probate Registry.
36
What is the definition of solvency?
The estate has the capacity to pay ALL debts and liabilities ## Footnote This includes both unsecured and secured debts.
37
What tax rate is applied to income tax on the estate?
BASIC rate ## Footnote This applies unless the income is below £1,000.
38
What relief is available for small gifts in one year?
£250 relief for each recipient ## Footnote This does not apply if the amount exceeds £250.
39
What is the exemption for spouse gifts?
No upper limit ## Footnote This applies to both lifetime and death estates.
40
What is the maximum relief for Business Property Relief (BPR)?
100% for unquoted shares or business interests ## Footnote This applies under certain conditions.
41
What is the exemption for agricultural property under APR?
Mostly 100% relief post 1995 ## Footnote It applies to agricultural land, buildings, and farmhouses.
42
What is the maximum allowance for marriage gifts?
£5,000 to son/daughter ## Footnote Other amounts vary based on the relationship.
43
What is the rule regarding capital gains tax (CGT) after death?
Only gains made after death are taxable ## Footnote This is calculated based on the probate value at the date of death.
44
What is the purpose of interim distributions?
Partial payments made in advance of distribution ## Footnote Beneficiaries' later entitlement is reduced proportionately.
45
What is required for signing off estate accounts?
Capital Account and Income Account ## Footnote The accounts must be signed by all PRs by the end of administration.
46
What is the specific form needed to transfer land?
AS1 Form ## Footnote This is required for transferring land assets.
47
What is the market value relevant for?
Valuing the remaining asset, taxed at 40% death rate ## Footnote Alternatively, it can be 20% on different facts.
48
What is the Annual Exemption (AE) amount?
£3,000 x 2 = £6,000 ## Footnote AE should be used last.
49
What is a PET?
Potentially Exempt Transfer, exempt on death only if transferor survives 7 years after the transfer.
50
What is the chargeable value of a transfer?
Value transferred minus exemptions and reliefs ## Footnote Max £6,000 AE must be used up Year 1 before Year 2 carry-over.
51
What is the nil rate band (NRB) amount?
£325,000 ## Footnote This applies to lifetime and death assets transferred.
52
What happens if the estate value exceeds £2 million regarding RNRB?
Reduced amount of RNRB applies.
53
What is Taper Relief?
Reduces final tax bill by 20% after 3 years ## Footnote Continues to reduce over time: 40% after 4-5 years, 60% after 6 years, 80% after 7 years.
54
Who is liable for tax on Lifetime Chargeable Transfers (LCTs)?
The recipient/donee.
55
What is the general rule on deductible expenditure?
Post-death/probate fees are deductible unless there's a contrary intention.
56
What is the significance of specifying how a gift is made in a will?
It clarifies the intention of the testator and mitigates tax implications.
57
What happens to gifts made to a spouse domiciled outside the UK?
Spouse exemption is limited, applicable only to life tenants.
58
What triggers the reduced 36% tax rate for IHT?
Giving away 10% or more of estate to a registered charity.
59
What is the tax treatment of gifts made to a spouse or charity regarding CGT?
No gain/no loss; it's treated as neutral.
60
What is the effect of Gifts with Reservation of Benefit (GWOB)?
Treated as never having made the gift due to continued benefit by the donor.
61
What is the capital gains tax rate for wills purposes on residential property?
20-28% for higher rate taxpayers.
62
What is the annual exemption for Capital Gains Tax (CGT)?
£6,000 ## Footnote This is distinct from the £3,000 on IHT.
63
When can small gifts allowance be utilized?
During lifetime, making £250 yearly transfers to intended recipients.
64
What is the relevant property regime?
IHT charges apply to the trust itself instead of individual beneficiaries.
65
What does the rule in s.144 IHTA state?
Distributions from a discretionary trust within 2 years of death are deemed to have taken place under the deceased’s will.
66
What should be considered when declaring a new trust?
Specify the amount and terms clearly in the trust declaration.
67
What is the purpose of tax planning with discretionary trusts?
To control the destination of life gifts and avoid accumulation of wealth subject to IHT.
68
What is the tax implication for loans in relation to IHT?
All loans and expenses can be deducted from the estate when calculating its value.
69
What is the general treatment of loans that exceed the value of relievable assets?
The remainder can be deducted from the value of the chargeable estate.
70
What is the impact of loans that are not repayable from the estate?
They do not reduce the estate value for IHT purposes.
71
What happens to income generated during estate administration?
Taxed at basic rates, but some allowances may apply for small amounts.
72
What happens when a donor continues to benefit from a gifted asset?
The donor is treated as never having given the asset away. ## Footnote For example, if a donor continues living in a gifted cottage without paying rent, the value of the cottage at the date of the donor's death is included in the estate.
73
How is the value of a cottage affected if the donor continues to stay in it after gifting?
The value of the cottage at the date of the donor's death is included in the estate.
74
What is the treatment of gifts with reservation of benefit (GWOB) for Capital Gains Tax (CGT) purposes?
GWOB will not be part of the death estate; the donee is liable for CGT regardless of circumstances.
75
What is the general rule concerning executors and CGT regarding GWOB?
Wills are often drafted with contrary intention, leading executors to pay CGT regarding GWOB.
76
What is the Pre-owned Assets Charge (POAC) concerning land?
If previously occupied, the individual must pay market rent and any contributions to its acquisition.
77
What are the POAC rules regarding chattels?
Previous possession requires the payment of market rent multiplied by 100% plus interest, along with contributions to its acquisition.
78
What is the treatment of intangibles held in a settlor-interested trust?
A benefit on the intangible property becomes payable to the settlor for his benefit.
79
What exemptions are applicable under the Pre-owned Assets Charge (POAC)?
* Spouse exemption * Family maintenance exemption * Small gifts exemption * Anything before 7 years is not included
80
What does the General Anti-Abuse Rule (GAAR) entail?
It addresses arrangements that give rise to an unsavoury tax advantage related to inheritance tax (IHT).
81
What is the main purpose test under GAAR?
It determines if obtaining a tax advantage was one of the main purposes of the arrangement.
82
What are the consequences of an abusive tax arrangement under GAAR?
A penalty of 60% of the amount attempted to be avoided, plus the onus to make reasonable corrections.
83
What are the Disclosure of Tax Avoidance Schemes (DOTAs) hallmarks?
1. Tax-avoidant suspect trying to obtain specific tax advantages related to IHT. 2. Taking contrived or abnormal steps to achieve tax advantages.
84
What is the onus under the DOTAs regime?
Promoters must notify HMRC about notifiable arrangements.
85
What happens once a notification is made under DOTAs?
HMRC allocates a Scheme Reference Number (SRN) and conducts investigations.

My Revision Practice Subjects (5 decks)

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