24. Inheritance tax Flashcards
What is the proforma for the transfer value?
Value of estate before gift X
Value of estate after gift X
Transfer value X
What are the types of lifetime transfers? (3)
- Exempt transfers: no inheritance tax paid at any point. i.e. gifts between spouses/civil partners
- Potentially exempt transfers (PETs): a gift from one individual to another. Usually exempt providing donor lives longer than 7 years following gift.
- Chargeable lifetime transfers.
Explain the exemptions for lifetime gifts (4)
- Small gift exemption: gift up to £250 per recipient per tax year (all or nothing)
- Marriage exemption: relief given on wedding presents
- £5,000 by a parent
- £2,500 by a grandparent
- £2,500 by a party to the marriage or the civil partnership
- £1,000 by anyone else
- Normal expenditure out of income: a lifetime gift exempt if
- regular, habitual payment
- made from donor’s income not capital
- does not impact donors standard of living
- Annual exemption limit: first £3000 per tax year not covered by other exemptions (work out last).
Can be brought forward one tax year but b/f to be used after current year.
What is the rate of tax paid on CLTs? How does it vary?
Dependent on who is paying the tax:
- Donor (default assumption) 25% of net donation given to trustee (in this case add tax charge to net chargeable amount)
- Trustee: 20% of the gross amount given to them.
What is the proforma for calculating the chargeable amount on a CLT?
CLT
XX.XX.XXXX
£
Transfer of value X
Annual exemption:
Current year: XXXX/XXXX (X)
Previous year: XXXX/XXXX (X)
Chargeable amount: net/gross X
Nil rate band at gilt: 325,000
Less GCTs < 7 years before) (X)
NRB available (X)
Taxable amount X
IHT payable X
Paid by: X
Due date of payment: X
Gross chargeable amount X
What is the nil rate band for 19/20?
What is it reduced by?
£325,000.
Reduced by gross chargeable transfers made in the previous 7 years.
What is death tax paid on and at what rate?
Both CLTs and PETs in last 7 years
How is death tax calculated?
Gross taxable amount X IHT payable at 40% X Taper relief (X) IHT paid in lifetime (X) = IHT payable on death X
What are the rates of taper relief?
3 - 4 years 20%
4 - 5 years 40%
5 - 6 years 60%
6 - 7 years 80%
What is the proforma for the death estate?
Pro forma death estate computation
£ £
Property X
Less: mortgage (not endowment) (X)
X
Business (soletrader/partnership) X
Stocks and shares (inc. ISAs) X
Government securities etc.
Insurance policy proceeds
Property
Motor cars
Personal chattels
Debts due
Cash at bank (inc. ISA)
Less:
Debts due by deceased (X)
Outstanding taxes (X)
Funeral expenses (X)
(X)
Estate value X
Less: Exempt legacies to spouse (X)
Gross chargeable estate X
How do you tax the death estate?
Gross chargeable estate
Less: RNRB (lower of 150,000 or value of property)
Less: NRB (less GCTs over previous 7 years)
= Taxable amount
x 40% = tax on death
When is lifetime tax due?
If paid in first half of tax year (before 30th September), payable following 30th April
If paid in second half of tax year, payable 6 months after month end of gift
When is death tax and who is it paid by?
Due 6 months after the end of the month of death or on delivery of account of estate assets to HMRC- earlier of
For CLTs, death tax paid by trustees
For PETs, death tax payable by recipient of gift.
How can a RNRB/NRB be transferred between spouses on death?
When does it need to be claimed by?
Done by %.
(RNRB transfer available even before 06th April 2017, assume % 100%)
Claimed by executors of spouse within 2 years of death.
When can you claim RNRB
- Death on or after 06th April 2017
- Leaving residential property to direct descendants
