12. IHT - the charge Flashcards
When is IHT charged?
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)
On death
deemed transfer of value (s.4)
of all the property deceased was beneficially entitled to immediately before death (s.5)
PETs
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)
Value of TOV
value by which estate of donor decreases
RATES
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)
Sch.8A
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
Family home allowance
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
Who is liable to IHT?
PARTIES CAN CHOOSE
if no receipt, Revenue follows legislation
LCT = transferor primarily liability
Additional LCT + PET = transferee
ON DEATH = PR primary liable (s.200)
Revenue Charte for unpaid tax
s.237(1) - charge for unpaid tax
Effect of GWR (s.102 FA 1986)
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)
When does GWR apply?
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
RI55
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
Sillars v IRC
GWR
- not enjoyed at virtually entire exclusion because Donee had a share only and had no power (not entire exclusion)
ingram v IRC
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
s.102A
Now Ingram would fail
- if individual disposes of interest in land
- and enjoys significant right/interest in land
- s.102(3)/(4) applies
IRC v Eversden
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
s.102(5A)-(5C)
Eversden won’t work now
- if conditions satisfied, original disposal is treated as being made immediately after ending of spouse’s interest in possession
Pre-owned asset regime effect
income tax levied on donor
but s.21 - T can elect back to GWR treatment
LAND (POAR)
ONE - Occupation (incl. enjoyment)
TWO - disposal condition or contribution condition satisfied
annual exemption
s.19 - £3000
small gifts to the same person
s.10 - £250 each year (no rollover)
de minimis excemption
GWR doesn’t qualify for this
normal expenditure out of income
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
Bennet v IRC
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
McDowall v IRC
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
Gifts made in consideration of marriage
s.22 - must be in consideration of new status to fall within exemption parent = £5000 remote ancestor = £2500 parties = £2500 others = £1000
Holland v IRC
Cohabitation is not marriage
Business Property Relief
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
George & Anor
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
Clark & Anor
company mostly holding investments
NOT BPR
Arnander & R&C
agricultural property
- purpose of occupation must be agricultural operations
- here agricultural activities contracted out
- house larger than necessary for agricultural purposes
quick succession relief
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
