12. IHT - the charge

Question 1

When is IHT charged?

Answer 1

Chargeable transfer (s.1)

• which is a transfer of value (s.2)
• which is a disposition decreasing the value of the transferor’s estate (s.3(1))

Must be gratuitous - s.10
Charge = 20% (and 20% again if die)
BUT MOST lifetime transfer = PET (not charged unless die within 7 years)

Question 2

On death

Answer 2

deemed transfer of value (s.4)

of all the property deceased was beneficially entitled to immediately before death (s.5)

Question 3

PETs

Answer 3

no charge straight away

if donor dies –> PET becomes chargeable as a lifetime transfer but at death rates (subject to taper relief)

Asset must become part of donee’s estate or increase value (e.g. paying off bills)

Question 4

Value of TOV

Answer 4

value by which estate of donor decreases

Question 5

RATES

Answer 5

0% = BELOW £325,000
40% = amounts above £325,000

(36% if 10% of net value given to charity)

Lifetime: 20% immediately (when above nil rate band, looking back 7 years) and 20% again on death (if 7 years die)

Question 6

Sch.8A

Answer 6

Transfer of nil rate band

• when spouse B dies, spouse B can use the % of unused nil rate band of Spouse A
• e.g. if Spouse A did not use 80%, B gets 80% of the current nil rate band in addition to B’s own nil rate band

Question 7

Family home allowance

Answer 7

from 2017-18 (to 2020-21)

• £100,000 p/p
• increasing to £175k in 2020-21
• increase with inflation after 2020-21
• phased out for estates over £2mn

Question 8

Who is liable to IHT?

Answer 8

PARTIES CAN CHOOSE
if no receipt, Revenue follows legislation

LCT = transferor primarily liability
Additional LCT + PET = transferee
ON DEATH = PR primary liable (s.200)

Question 9

Revenue Charte for unpaid tax

Answer 9

s.237(1) - charge for unpaid tax

Question 10

Effect of GWR (s.102 FA 1986)

Answer 10

Property treated as remaining in A’s estate immediatly before death regardless of when gift was made = IHT

worse than PET (if 7 years = no charge)
might be CGT too (unless PPRR)

Question 11

When does GWR apply?

Answer 11

DISPOSAL by way of gift (narrower than TOV)
& either
ONE - at or before relevant period no BF possession/enjoyment of donee

TWO - during relevant period property not enjoyed at entire exclusion of donor or virtually entire exclusion

Question 12

RI55

Answer 12

Virtually entire exclusion = ambit is obscure
- might be a de minimise view

ROB applies

• staying weekends
• second home both use
• house w/ lib donor uses
• car which donor uses every day

ROB doesn’t apply

• 2 weeks holiday home alone (or 4 weeks w/donee)
• baby sitting
• social visists
• occasional use of car
• temp short-term stays
• using land to walk dog/horse-riding

Question 13

Sillars v IRC

Answer 13

GWR

- not enjoyed at virtually entire exclusion because Donee had a share only and had no power (not entire exclusion)

Question 14

ingram v IRC

Answer 14

Gave donee a freehold already subject to a 20 year lease

• avoided s.102
• not reservation, carved out before giving lease
• in property law, “house” is not a legal entity, only have a right in property which can be altered

Question 15

s.102A

Answer 15

Now Ingram would fail

• if individual disposes of interest in land
• and enjoys significant right/interest in land
• s.102(3)/(4) applies

Question 16

IRC v Eversden

Answer 16

s. 102 doesn’t apply if transfer is an exempt transfer
- so here, gift to spouse = s.18 exempt transfer
- doesn’t matter that interest returned to donor
- no s.102

Question 17

s.102(5A)-(5C)

Answer 17

Eversden won’t work now
- if conditions satisfied, original disposal is treated as being made immediately after ending of spouse’s interest in possession

Question 18

Pre-owned asset regime effect

Answer 18

income tax levied on donor

but s.21 - T can elect back to GWR treatment

Question 19

LAND (POAR)

Answer 19

ONE - Occupation (incl. enjoyment)

TWO - disposal condition or contribution condition satisfied

Question 20

annual exemption

Answer 20

s.19 - £3000

Question 21

small gifts to the same person

Answer 21

s.10 - £250 each year (no rollover)

de minimis excemption
GWR doesn’t qualify for this

Question 22

normal expenditure out of income

Answer 22

s.21 - encourages disposing of assets during lifetime but mostly helps wealthy people

ONE - part of normal expenditure
TWO - out of income
THREE - transferor left with sufficient income after tax to maintain usual standard of licing

Question 23

Bennet v IRC

Answer 23

S.21 normal expenditure out of income

NEED NOT DO TWICE TO ESTABLISH REGULARITY

• done once and expected to do again = sufficient to establish regularity
• no standard of reasonableness and tax planning motive is no obstacle

Question 24

McDowall v IRC

Answer 24

SUBSTANTIAL GIFTS made during lifetime
- attorney made gifts on deceased’s behalf by power of attorney during last years of life

ATTORNEY HAD NO POWER TO MAKE GIFTS
but if gifts were valid = s.21

Question 25

Gifts made in consideration of marriage

Answer 25

s.22 - must be in consideration of new status to fall within exemption 
parent = £5000
remote ancestor = £2500
parties = £2500
others = £1000

Question 26

Holland v IRC

Answer 26

Cohabitation is not marriage

Question 27

Business Property Relief

Answer 27

ONE - owned by donor during previous 2 years
TWO - not property subject to binding contract for sale

if relevant business property
qualifying business
held for two years
asset not expected asset

RELIEF = 100% OR 50% depending on type of asset

Question 28

George & Anor

Answer 28

ORIGINALLY: to decide if investment or trading company look at amount of time spent on each one

NOW: a better test it to look at what the company looks like overall

Question 29

Clark & Anor

Answer 29

company mostly holding investments

NOT BPR

Question 30

Arnander & R&C

Answer 30

agricultural property

• purpose of occupation must be agricultural operations
• here agricultural activities contracted out
• house larger than necessary for agricultural purposes

Question 31

quick succession relief

Answer 31

if B’s estate increases by chargeable transfer
& B dies within 5 years

tax chargeable on B’s death = reduced by % of tax paid re:1st transfer

• 100% for death within 1 year
• 20% drop a year