Wills and Tax Planning Flashcards
(33 cards)
What types of loans can you not deduct for IHT purposes?
Loans specifically made to acquire, maintain or enhance assets that qualify for BPR / APR / woodlands relief
Loans which are not repaid from the estate
Loans made to acquire, maintain or enhance excluded property
Loans which fund a qualifying foreign currency
When do Gift with Reservation of Benefit rules apply?
Donee does not assume bona fide possession of the property at / before the start of the relevant period (7 years before donor’s death, or less if made sooner before death)
Or, if at any time during the relevant period, property is not enjoyed to entire exclusion of the donor
When does a donee have a bona fide possession in a property?
Vested / beneficial interest in the property
Actual enjoyment of a property - physical or receipt of income
Assume possession and enjoyment at the start of the relevant period
Beneficiary can pay donee a market rent to live in the home and still have a bona fide interest
Can a GROB arise if the settlor is a beneficiary of a trust in which the property is?
Yes - including if it is a discretionary trust. Does not matter if the settlor actually obtains the benefit or not
How is a GROB treated for tax reasons?
If GROB continues at the date of donor’s death - property is treated as part of the donor’s estate, and valued at date of death for IHT
If the GROB no longer continues - property is treated as part of donor’s estate and as a PET on the date the reservation ceased. Approached as a PET - but no annual exemption.
Is a remainder interest in a trust included in your taxable estate?
No
What is the pre-owned assets charge?
An annual income tax charge imposed on individuals who give away certain types of property during their lifetime
What types of property are eligible for a pre-owned asset charge?
Land
Chattels
Intangible property held in a settlor interested trust
What two conditions must be satisfied for land to be subject to a POAC?
- Individual occupies land, either individually or with others – construed widely
- Individual has either disposal of the occupied land or has contributed towards the acquisition of that land without obtaining a beneficial interest in it
What is the tax effect if property is caught as a POAC?
benefit that the individual receives through their occupation is treated as income e.g. you have to pay income tax on the equivalent of the market rent you would have had to pay to occupy the land
What is the tax effect if a chattel is caught as a POAC? How is tax calculated?
Income tax calculated by taking market value of chattel and multiplying it by an official rate of interest
What is the tax effect if a settlor-interested trust is caught as a POAC? How is tax calculated?
If POAC applies - calculated by reference to the official interest rate payable on the settled property, with credit for any income tax or CGT paid under other anti-avoidance rules.
What transactions are excluded from the POAC regime?
- Transfers to spouse / CP
- Family maintenance dispositions
- Annual / small gift exemptions
- Arm’s length sales
- Occupation 7 years after cash gift
What do general anti-abuse rules aim to do?
Tries to catch arrangements which are contrary to the spirit or policy of tax law / seek to exploit perceived loopholes in the law / artificial arrangements
What is the effect if an arrangement is caught by GAAR rules?
Taxpayer must make ‘just and reasonable’ adjustments
Penalty of 60% of the counteracted amount is also payable
What are the conditions for the GAAR to apply?
- Arrangement which gives rise to a tax advantage
- Relating to a tax to which the GAAR applies – including IHT
- It is reasonable in all the circumstances to conclude that obtaining a tax advantage is the main / one of the main purposes of the arrangement
- Arrangement is an abusive one: HMRC must show that ‘entering into the transaction cannot reasonably be regarded as a reasonable course of action in relation to relevant tax provisions, having regard to all the circumstances’
What is the effect of the Disclosure of Tax Avoidance Schemes reporting regime?
Places duties on promoters of arrangements to inform HMRC about notifiable arrangements or proposals
Parties must provide information to HMRC
What is the difference between POAC and a GROB?
GROB - primary anti avoidance legislation
POAC - final catch all to ensure things will be caught
Where will exemptions apply in this scenario?
£100,000 to spouse, residue to child
- Only the residue is subject to IHT
- Amount of IHT due is paid from residuary funds
- Spouse gets £100,000
- Child gets remaining sum after tax
What is the difference between naming a spouse as a life tenant of a trust with £100k, versus giving them £100k outright?
No difference at all
Where will exemptions apply in this scenario: “£100,000 to spouse, residue equally between charity and children”
- Spouse gets £100k
- Charity gets ½ residue
- Children get other half of the residue, after IHT has been deducted
Where will exemptions apply in the following scenario?
“£400k to child, subject to tax, and residue to spouse”
- Child gets £400,000 less ALL IHT due
- Residue to spouse – inherited without any deduction for IHT
Where will exemptions apply in the following scenario? “£100,000 to daughter subject to tax, residue equally between spouse and son”
- Spouses share is exempt
- IHT due is apportioned between the legacy and the son’s half of the residue
- Daughter gets £100k less proportionate amount of IHT
- Son gets share of the residue with tax deducted
Where will exemptions apply in the following scenario? “£350,000 to son free of tax, residue to spouse”
- Son gets the full legacy – meaning that the real value of the gift is £350,000 + IHT attributable to the legacy [grossing up calculation here]
- Residue passes to spouse – even though the spouse is exempt, the residue is the only part of the estate from which the IHT balance could be taken
