Wills Unit 3 IHT Flashcards
(129 cards)
1
Q
What is a bare trust?
A
A type of trust arrangement where the trustee holds legal title to the trust assets, but the beneficiary has absolute and immediate entitlement to both the capital and income of the trust.
2
Q
What is the key feature regarding beneficiary control in a bare trust?
A
The beneficiary has the right to all the income and capital of the trust at any time, as long as they are legally competent.
3
Q
What is the role of the trustee in a bare trust?
A
The trustee simply holds the asset on behalf of the beneficiary and must act according to the beneficiary’s instructions.
4
Q
True or False: In a bare trust, the trustee has discretion over how the trust assets are used.
A
False.
5
Q
What are common use cases for bare trusts?
A
- Holding assets for minors until they reach legal adulthood
- Simple asset-holding arrangements
6
Q
How is the beneficiary taxed in a bare trust?
A
The beneficiary is taxed directly on the income and gains from the trust, as if they owned the assets outright.
7
Q
What does s60(3) LPA 1925 address?
A
It limits the presumption that a recipient of a voluntary conveyance holds it on resulting trust for the giver, requiring additional evidence to infer that a trust was intended.
8
Q
Why is s60(3) LPA 1925 significant?
A
It prevents automatic assumptions that the person receiving property holds it on trust for the person who gave it.
9
Q
What is a resulting trust?
A
A type of implied trust that arises when property is transferred to another in circumstances where it is unclear who owns the beneficiary interest.
10
Q
What is the presumption of resulting trust?
A
It arises when a transferor transfers property to a transferee without a clear intention to gift, suggesting the transferee holds the property on trust for the transferor.
11
Q
What is meant by ‘presumption of advancement’?
A
It applies when the transferor is presumed to be gifting property to the transferee due to a moral obligation, typically in familial relationships.
12
Q
List situations that might give rise to a presumption of advancement.
A
- From father to child
- From person in loco parentis to child
- By husband to wife
- By fiancé to fiancée
13
Q
What happens if the roles are reversed in the presumption of advancement?
A
The presumption of resulting trust will apply instead unless rebutted by contrary evidence.
14
Q
Fill in the blank: The presumption of resulting trust is less likely to apply if the property being transferred is _______.
A
land.
15
Q
What must be shown to rebut the presumptions of resulting trust or advancement?
A
Evidence of the transferor’s intention before or at the time of transfer.
16
Q
What is an automatic resulting trust?
A
It arises when the settlor transfers property to trustees on trust, and the anticipated trust does not dispose of the equitable interest.
17
Q
What is the significance of the phrase ‘equity abhors a vacuum’ in the context of resulting trusts?
A
It means that if an express trust fails, it is presumed that the settlor would want the property back.
18
Q
What are joint tenants in the context of family home ownership?
A
They are equally entitled to the family home, and upon the death of one partner, the other automatically inherits the home.
19
Q
What is the difference between joint tenants and tenants in common?
A
Joint tenants have equal shares and rights to the whole property, while tenants in common have distinct shares that can be unequal.
20
Q
What must a couple do to evidence their decision on how to hold the equitable estate in the family home?
A
They should evidence the decision in signed writing.
21
Q
What is required for a declaration of trust to be enforceable?
A
It must be evidenced in signed writing to comply with s53(1)(b) LPA 1925.
22
Q
What governs the affairs of cohabiting couples in the absence of marriage or civil relationship?
A
Ordinary principles of trust law apply.
23
Q
What is the role of the Matrimonial Causes Act 1973 in divorce proceedings?
A
It gives family courts wide redistributive powers to determine who gets what out of the divorce.
24
Q
True or False: An express trust must always be created to determine beneficial interests in the family home.
A
False.
25
What is an express trust in the context of family homes?
An express trust is created when a couple becomes registered co-proprietors of the family home, dealing with beneficial interests.
26
When is an express trust less likely to be created over the family home?
An express trust is much less likely when only one partner is the registered proprietor.
27
What must be considered if an express trust has not been created?
Whether an implied trust over the land has arisen by operation of law.
28
What section of the LPA states that implied trusts do not need to be evidenced by writing?
s53(2) LPA.
29
What is a resulting trust?
A resulting trust is presumed when someone contributes money to purchase property in the name of another, giving that party a beneficial interest.
30
What contributions are considered for a resulting trust?
Only contributions towards the purchase price count.
31
Do payments for ancillary items create a resulting trust?
No, payments for ancillary items such as conveyancing fees or stamp duty do not give rise to a resulting trust.
32
What establishes a common intention constructive trust?
A common intention constructive trust is established when both partners are registered as co-proprietors.
33
What is the presumption if a couple holds the legal title to a home jointly?
Each partner’s beneficial interest in the home is presumed to be joint and equal.
34
What does 'equity follows the law' imply in the context of family homes?
It implies partners are presumed to hold the house on trust for themselves in equal shares.
35
What must a claiming partner prove to persuade the court of a larger beneficial share?
Evidence of an agreement or common intention and detrimental reliance on that agreement.
36
What factors may the court consider in determining beneficial interests?
["Advice or discussions at the time of purchase", "Reasons for transferring the home into joint names", "Nature of partners' relationship", "Responsibility for children", "Financing of the purchase", "Arrangement of finances", "Discharge of household expenses"]
37
True or False: There is a presumption of joint beneficial ownership if the home is solely owned.
False.
38
What must the partner whose name is not on the legal title establish?
They must establish that they are entitled to a beneficial interest through a common intention constructive trust.
39
What is the leading case regarding common intention constructive trusts?
Lloyds Bank plc v Rosset.
40
What are the key elements to establish a claim in proprietary estoppel?
["Assurance", "Detriment", "Reliance"]
41
What does 'assurance' mean in proprietary estoppel?
A representation or expectation created by the legal owner that the claiming party would become entitled to an interest in land.
42
What constitutes 'detriment' in a proprietary estoppel claim?
Acting to their detriment in reliance upon the assurance made.
43
What remedies can be awarded once proprietary estoppel is established?
["Transfer of legal ownership in land", "Grant of a lease", "Right to occupy rent-free", "Financial compensation", "Beneficial share in the home"]
44
What is the main difference between common intention constructive trust and proprietary estoppel?
Common intention constructive trust guarantees a beneficial share, while proprietary estoppel gives the court discretion over the remedy.
45
What is Inheritance Tax (IHT)?
IHT aims to impose a tax liability on estates at the time of death.
46
What is governed by the Inheritance Tax Act 1984?
The charge to Inheritance Tax (IHT).
47
What is the primary purpose of Inheritance Tax (IHT)?
To impose a tax liability on estates at the time of death.
48
What does IHT aim to tax?
All the money and assets an individual has acquired over time.
49
What is governed by the Inheritance Tax Act 1984?
Inheritance Tax (IHT).
50
On what three occasions may IHT be charged?
* Death
* Lifetime gift made within 7 years prior to death
* Lifetime gift to a company or into a trust.
51
What is charged when an individual dies?
IHT is charged on the value of their estate, subject to exemptions and reliefs.
52
What are potentially exempt transfers?
Lifetime gifts made to individuals that are not chargeable at the time but may become chargeable if the donor dies within 7 years.
53
When does a lifetime gift to a company or trust become chargeable to IHT?
Immediately at the time it is made, unless the trust is for a disabled person.
54
Define 'chargeable transfer' according to IHTA 1984.
A transfer of value made by an individual that is not an exempt transfer.
55
What steps are involved in calculating IHT?
* Identify transfer of value
* Find the value transferred
* Apply relevant exemptions and reliefs
* Calculate tax at the appropriate rate.
56
What is the nil rate band for IHT for 2024/25?
£325k.
57
What is the residence nil rate band for 2025/26?
£185k.
58
What is 'cumulation' in the context of IHT?
Considering chargeable transfers made within 7 years prior to a transfer to determine the available nil rate band.
59
What constitutes an 'estate' for IHT purposes?
All property to which the deceased was beneficially entitled immediately before death, excluding 'excluded property'.
60
What is a 'qualifying interest in possession'?
An interest under which the beneficiary is entitled to claim the income from the trust property.
61
What happens if property is subject to a reservation at the time of death?
The donor is treated as being 'beneficially entitled' to the property.
62
What types of property fall outside the estate for IHT purposes?
* Life assurance policies written in trust
* Discretionary lump sum payments from pension funds.
63
What is the basic valuation principle for IHT?
Assets are valued at the price they might reasonably fetch if sold in the open market immediately before death.
64
Which debts can be deducted for IHT purposes?
* Liabilities incurred for money or money's worth
* Reasonable funeral expenses.
65
What is the spouse or civil partner exemption?
Any property included in the estate for IHT purposes is exempt if it passes to the deceased’s spouse or civil partner.
66
What is charitable exemption in IHT?
Property passing on death to charity is exempt from IHT.
67
What is Business Property Relief (BPR)?
Reduces the value transferred by a transfer of value of relevant business property by a certain percentage.
68
What types of property qualify for 100% relief under BPR?
* Business or interest in a business
* Company shares not listed on a stock exchange.
69
What is Agricultural Property Relief?
Reduces the agricultural value of agricultural property by a certain percentage.
70
What percentage reduction is allowed for agricultural property if the transferor had the right to vacant possession immediately before the transfer?
100% reduction.
71
What must be satisfied to qualify for agricultural property relief?
The property must have been occupied by the transferor.
72
What part of a property's value does not qualify for agricultural property relief?
That part of the property’s value which is over and above its agricultural value
## Footnote
This value may qualify for business property relief if the relevant requirements are satisfied.
73
What percentage reduction is allowed where the transferor had the right to vacant possession immediately before the transfer?
100%
## Footnote
This applies if the property was subject to a letting commencing on or after 1 Sep 1995.
74
What percentage reduction is allowed in cases other than those qualifying for 100% reduction?
50%
## Footnote
Further conditions must be satisfied for any relief.
75
What are the conditions for relief related to property occupied for agriculture?
The property was occupied by the transferor for the purposes of agriculture for the 2 years prior to the transfer or that it was owned by the transferor for the 7 years prior to the transfer and was occupied by someone throughout that period for the purposes of agriculture.
76
What is the nil rate band (NRB) for inheritance tax?
£325k
## Footnote
The rate of tax on the first £325k is 0% if the deceased made no chargeable transfer in the 7 years before death.
77
What is the standard inheritance tax rate charged on amounts exceeding the NRB?
40%
## Footnote
In limited cases, a special rate of 36% may apply to increase charitable giving.
78
Under what condition does the special rate of 36% apply?
When at least 10% of a defined component of a person’s net estate passes to charity.
79
What happens to the nil rate band if the deceased died having survived a spouse?
The NRB in force at the date of death of the survivor is increased by the unused percentage of the NRB of the first to die, subject to a maximum increase of 100%.
80
What principle applies if the deceased made any chargeable transfers in the 7 years before death?
The cumulation principle
## Footnote
This means that lifetime transfers use up the deceased’s NRB first, reducing the amount available for the estate.
81
What is the residence nil rate band (RNRB) for 2024/25?
£175k
## Footnote
The RNRB is available in addition to the NRB for deaths occurring after 6 Apr 2017.
82
What is required for the RNRB to apply?
The deceased must die owning a qualifying residential interest which is closely inherited.
83
Define a 'qualifying residential interest'.
An interest in a dwelling house which has at any time been the deceased’s residence and which forms part of the deceased’s estate.
84
Who qualifies as a 'lineal descendant' for the purposes of RNRB?
Children, step-children, adopted children, foster children, or children where the deceased had been appointed as a guardian.
85
What is the effect of the RNRB on the estate value threshold?
Where the estate is valued at £2M or more, the RNRB is reduced by £1 for every £2 over the £2M threshold.
86
What is the formula for calculating the adjusted RNRB?
£175,000 - (value of estate - £2m) / 2
87
What is the downsizing allowance related to RNRB?
It allows a person who downsized or sold their property to still claim RNRB if the replacement property or equivalent assets are left to lineal descendants.
88
What is a potential exempt transfer (PET)?
Any gift made by an individual to another individual or into a disabled trust, to the extent that the gift would otherwise be chargeable.
89
What are the steps in identifying a transfer of value?
1. Identify the transfer of value
2. Find the value transferred
3. Apply any relevant exemptions and reliefs.
90
What are the exemptions that apply to lifetime transfers?
Spouse or civil partner and charity exemptions.
91
What is the annual exemption for lifetime transfers?
The first £3,000 transferred by lifetime transfers in each tax year.
92
What is the exemption limit for small gifts in a tax year?
Lifetime gifts of £250 or less to any one person are exempt.
93
What is the tapering relief for PETs?
If a PET has become chargeable, tapering relief reduces any tax payable based on the number of years survived after the transfer.
94
What is the effect of death on lifetime chargeable transfers (LCTs)?
If a transferor dies within 7 years of making an LCT, the IHT payable must be recalculated, and more IHT may be payable by the trustees.
95
What is the tax rate on the first £325,000 of a lifetime chargeable transfer?
0%
## Footnote
This is the nil rate band for lifetime chargeable transfers.
96
What happens to potentially exempt transfers (PETs) if the transferor dies within 7 years?
They become chargeable and must be assessed for IHT.
97
What is the cumulative total for assessing PETs?
It includes any LCTs made in the 7 years before the PET being assessed.
98
What percentage of the death charge applies to transfers within 6-7 years before death?
20% of death charge
## Footnote
This applies to the Inheritance Tax (IHT) calculations for Lifetime Chargeable Transfers (LCTs).
99
What happens if a transferor dies within 7 years of making a Lifetime Chargeable Transfer (LCT)?
The IHT payable must be recalculated and may increase
## Footnote
This is due to the full death rate of IHT applying and any Potentially Exempt Transfers (PETs) becoming chargeable.
100
What is the effect of death on Lifetime Chargeable Transfers (LCTs)?
Increased tax bill may occur due to full death rate and chargeable PETs
## Footnote
Earlier PETs may reduce the available Nil Rate Band (NRB) for the LCT.
101
What are the steps necessary to check reliefs claimed at step 3 when assessing LCTs?
1. Check if reliefs claimed are still available
2. Determine if earlier PETs used up reliefs
3. Calculate tax at appropriate rate
## Footnote
It is crucial to evaluate prior PETs that may affect the LCT.
102
What is the estate rate in the context of IHT?
The average rate of tax applicable to each item of property in the estate
## Footnote
It helps determine the tax attributed to specific items.
103
Who is primarily liable for IHT on property not comprised in a settlement immediately before death?
Personal Representatives (PRs)
## Footnote
This includes property owned outright by the deceased.
104
What does it mean if property is comprised in a settlement immediately before death?
Property held in trust, not owned outright by the deceased
## Footnote
The trustees are liable for the IHT attributable to that property.
105
What is the liability of Personal Representatives (PRs) regarding gifts made during the deceased's lifetime?
PRs become liable for tax if the transferor reserved a benefit and the tax remains unpaid after 12 months
## Footnote
The transferee is primarily liable initially.
106
What happens if a PET becomes chargeable within 7 years of the gift?
IHT may be payable and the transferee is primarily liable
## Footnote
If unpaid after 12 months, PRs become liable for the tax.
107
What is the basic rule for IHT payment after death?
IHT is due for payment 6 months after the end of the month of death
## Footnote
PRs usually pay earlier to expedite estate administration.
108
What is the instalment option in relation to IHT?
Allows tax on certain properties to be paid in 10 equal yearly instalments
## Footnote
Applicable to land and business properties under specific conditions.
109
What is the general anti-avoidance rule (GAAR) in IHT?
Enables HMRC to counteract abusive tax arrangements
## Footnote
An arrangement is considered abusive if obtaining a tax advantage was a main purpose.
110
What does the term 'burden of IHT' refer to?
Who ultimately bears the tax burden
## Footnote
The transferor can decide the burden through express provision in the will.
111
What is the impact of tapering relief on IHT?
Reduces recalculated tax if more than 3 years have elapsed since the transfer
## Footnote
Credit is given for any IHT paid at the time the LCT was made.
112
When does the liability for IHT on LCTs typically fall?
The transferor is primarily liable, but trustees may also pay
## Footnote
In practice, the trustees often handle the payment from the property.
113
What does 'grossing up' refer to in the context of IHT?
Increasing the transfer value by the tax amount paid by the transferor
## Footnote
This ensures the loss to the estate reflects the tax paid.
114
What is the effect of a joint property on IHT liability?
PRs are liable for IHT on joint property even if it does not vest in them
## Footnote
Their liability is limited to the value of assets received.
115
What is the deadline for IHT payment on LCTs made after 5 April and before 1 October?
Due on 30 April in the following year
## Footnote
Other LCTs are due for payment 6 months after the month in which they were made.
116
What does holding onto certificates or official documents indicate?
Indicates an intention the transferor should continue to have some kind of interest in the property
## Footnote
This suggests that the transferor may not fully relinquish ownership rights.
117
What does the future payment of dividends to the transferor indicate?
Indicates some kind of entitlement to the property
## Footnote
This implies that the transferor retains a financial interest in the property.
118
Can later instructions to transfer the property to someone else rebut the initial intention?
Cannot be rebutted by later instructions to transfer the property to someone else
## Footnote
This highlights the binding nature of initial intentions regarding property transfers.
119
What is required for shares to qualify for business property relief?
Shares must be owned for at least 2 years before death and the company must be a trading company
## Footnote
This is a key requirement for tax relief on business assets.
120
What must the owner of shares in a listed company have to qualify for certain rights?
Must have had voting control of the company
## Footnote
This control is necessary for entitlement to certain benefits or reliefs.
121
True or False: There is a presumption of advance between a wife and husband.
False
## Footnote
The presumption of advance does not apply in this context.
122
What is necessary to apply presumptions in a voluntary transfer of personalty?
No express evidence as to the donor’s intention
## Footnote
This situation often leads to legal assumptions about the transfer.
123
What takes place in the absence of clear evidence of intention during a voluntary transfer?
There is a presumption of resulting trust so that the donee is presumed to hold on trust for the donor
## Footnote
This means the recipient may need to return the asset to the donor.
124
Why is the residence nil rate band not applicable in certain cases?
The house passes to the sister
## Footnote
This indicates that the inheritance tax relief does not apply when the property is inherited by a sibling.
125
What must be proven for a resulting trust in favor of a non-owning partner?
There must be a contribution to the purchase price at the time the purchase was made
## Footnote
This establishes the financial stake of the non-owning partner in the property.
126
What must occur to infer a constructive trust in the absence of an express understanding between partners?
There must be direct contributions to the purchase price and/or mortgage repayments
## Footnote
Household expenses are generally insufficient to establish such a trust.
127
Can evidence of a person’s intentions after a transfer be used to support their case?
Can only be used against that person
## Footnote
This limits the admissibility of post-transfer intentions in legal arguments.
128
What is needed for the daughter to establish her claim to proprietary estoppel?
The daughter is able on the facts to establish the equity
## Footnote
This refers to her right to seek a remedy based on reliance on promises made.
129
What must be recalculated for NRB to be applicable to LCT at the time of transfer?
It has to take into consideration any PET made before the LCT and use up the NRB
## Footnote
This ensures the correct application of tax reliefs during property transfers.
