Wills tax and tax reliefs

Question 1

Is a life interest trust included in taxable estate? Succession estate?

Answer 1

(1) Taxable: Yes if life tenant, no if remainder tenant
(2) Succession: No if life tenant, yes if remainder interest - passes to estate if vested in interest (i.e. not contingent on remainder outliving life tenant)

Question 1

What are the values for marriage exemption? What can marriage exemption be claimed alongside?

Answer 1

£5000 from each parent (e.g. max £20,000)
£2500 from each grandparent or great-grandparent
£2500 from one party to the other
£1000 anyone else

Can be claimed alongside the AE

Question 2

What is the family maintenance exemption?

Answer 2

Maintenance payments no taxable if to:
-Spouse (or former spouse if part of divorce settlement)
-Minor child of either party to marriage for maintenance, education or training, or if over 18 and in full education or training
-Dependant relative to make reasonable provision for care

Question 3

Can small gifts exemption be combined with anything else?

Answer 3

NO (including AE)

Question 4

What is normal expenditure out of income relief?

Answer 4

Exempt if:
-from donor’s income
-part of normal/regular pattern of giving
-do not affect donor’s standard of living

No upper limit

HMRC more likely to accept if made under legal obligation or clear history of pattern (e.g. monthly payments)

Question 5

When does the 10% discount take place with property?

Answer 5

When held as either tenants in common or joint tenants with someone who isn’t spouse/civil partner

Question 6

What debts are deductible for IHT purposes?

Answer 6

Outstanding debts due at date of death, reasonable funeral expenses + cost of a tombstone

NOT post death debts/expenses (apart from reasonable funeral expenses and cost of a tombstone)

Question 7

Who is liable to pay IHT on LCT’s during lifetime? What if they do not pay?

Answer 7

the trustees of the trust (using assets in trust)

The donor will become liable

Question 7

Who is liable to pay IHT on failed PETs and LCTs? What if don’t pay?

Answer 7

General rule: The donee is liable

PET: the recipient
LCT: the trustees (using assets in trust)

If don’t pay within 12 months from end of month of death - deceased PR’s will become liable

Question 7

When is the AE applied if there are also other available reliefs?

Answer 7

It is applied last (current yr AE first + if available previous year AE after)

Question 8

What reliefs are only available for lifetime transfer?
Only on death?
Both life and death?

Answer 8

Lifetime:
-AE
-Family maintenance
-Small gifts
-Marriage
-Normal expenditure out of income
-Taper relief

Death:
-Woodlands
-Quick succession

Both:
-APR
-BPR
-Spouse
-Charity
-political party
-gifts for national purposes + heritage maintenance
-Employee Benefit Trusts (EBTs)
-Housing associations

Question 9

When does spouse exemption apply to life interest trusts?

Answer 9

When transferring money to a life interest trust where spouse is life tenant (does NOT apply where remainder tenant_0

Question 10

When is business property not available for BPR?

Answer 10

for making or holding investments (e.g. rental property)

Question 11

When is someone deemed to have acquired assets for BPR or APR when inherited if not spouse? If spouse?

Answer 11

From date of death (even if they received them later)

Spouse - From when originally acquired by deceased

Question 12

With quoted shares for BPR, what do they have to be to qualify for 50% rate?

Answer 12

Only if own 50%+ of company

Question 13

What are the qualifying periods for APR? What is the rate of relief for APR? Does it take priority to BPR?

Answer 13

2 yrs if occupied for agri purposes throughout two years before transfer
or
Owned by transferor + occupied by them or another for agri purposes 7 years before transfer

100% for both of above (7 yrs - if let on or after Sept 1995) on the AGRICULTURAL VALUE of assets (not market value)
50% if let before Sept 1995

YES APR takes priority to BPR

Question 14

What is woodlands relief?

Answer 14

Gifts of woodland following death where owned for at least 5 yrs before death (or inherited - no qualifying period)

Defers tax based on the value of the timber (not the land), until timber is subsequently sold or given away

Question 15

What are the requirements for political party exemption?

Answer 15

2 MPs
Or at least 1 MP + 150,000 votes given to candidates representing party

Question 16

Low value excepted estate?

Exempt excepted?

Answer 16

No IHT payable because gross value of estate is within NRB (ONLY NRB + TNRB - cannot claim RNRB otherwise it won’t be excepted!!!!)

Gross value is no more than £3mn and no IHT is payable because after debts deducted and SPOUSE or CHARITY exemption applied - within NRB (can only consider these reliefs - not RNRB!)

Question 17

What are the factors which disqualify an estate from being excepted?

Answer 17

1) Deceased made a GRoB which is either still continuing or ceased within 7 yrs before death
2) Estate includes more than 1 trust interest, or single trust interest worth more than £250,000
3) Foreign assets worth more than £100,000
4) Value of specified transfers exceeds £250,000
5) Claim for RNRB is being made

Question 18

When a beneficiary receives a gift, what is its value?

Answer 18

Value at death (probate value), not value of transfer

Question 19

With life interest trusts, how can you save on IHT liability?

Answer 19

By naming spouse as life tenant - makes whole trust free from IHT regardless of remainder beneficiaries

Question 20

What is required to attract BPR?

Answer 20

Owned for previous 2 years prior (unless inherited from spouse - also includes their ownership)

100% for unquoted shares
and business or interest in a business

50% for quoted shares (where controlling interest +50%)
assets owned by taxpayer but used for business purposes

Question 21

How much does the RNRB taper by above X amount?

Answer 21

Above £2mn it tapers by £1 every £2 above £2mn (up to £2.35mn where no RNRB can be claimed)

Question 22

What happens where charity exemption reaches a certain threshold?

Answer 22

Where 10% or more of estate is to charity = IHT charged at 36%

Question 23

What is not included in taxable estate?

Answer 23

1. Remainderman of life interest trust
2. Insurance policy written in trust in another (if the policy was payable to deceased’s estate then it would be included)
3. Discretionary pension schemes (where the deceased was part of an employer’s pernsion scheme and there is discretionary lump sum payment made by the pension fund trustees - if the lump sum is payable as of right it is included!!)

Question 24

What else should be considered regarding pensions?

Answer 24

Where there has been an overpayment or underpayment of pension (can make enquiries as to whether any sums are due to estate)