4 - Inheritance Tax (A)

Question 1

What is IHT charged on?

Answer 1

Certain transfers of property or value

Question 2

What is the current IHT nil rate band?

Answer 2

£325,000

Question 3

What rate of IHT is paid on transfers of over the current NRB threshold, on or within 7 years of death?

Answer 3

40% over £325,000 (NRB)

Question 4

A reduced rate of tax is applied on transfers of property or value over the current NRB threshold, in which circumstances and what is the rate?

Answer 4

A reduced rate of 36% applies to an estate where at least 10% of the net estate is left to a UK charity.

Question 5

What rate of IHT is paid on ‘other chargeable lifetime transfers’, e.g. payments into discretionary and most other trusts, when over the current NRB threshold?

Answer 5

20% over £325,000

Question 6

What happens to unused NRBs?

Answer 6

Can be transferred to the estate of a surviving spouse or civil partner

Question 7

What is the current IHT RNRB?

Answer 7

£175,000

Question 8

What is the main purpose of the RNRB?

Answer 8

To protect the family property, at least partially

Question 9

RNRB can only be set against the chargeable estates of those who died on or after which date?

Answer 9

6 April 2017

Question 10

RNRB is only available where a home is inherited on death by whom?

Answer 10

Direct descendants (including step children, adopted children and foster children)

Question 11

What happens to unused RNRBs?

Answer 11

They can be transferred to a surviving spouse or civil partner – even if the first spouse or civil partner died before 6 April 2017.

Question 12

What must first be deducted before calculating the value of a property for IHT purposes?

Answer 12

Mortgages

Question 13

If a property is valued at £150,000 for the sake of valuation to use RNRB, what RNRB would be available?

Answer 13

£150,000, you don’t get to use the full £175,000 if the property isn’t worth this

Question 14

The RNRB is not available against lifetime transfers becoming chargeable as a result of the donor’s death within how many years?

Answer 14

7

In short, this means that if you’re deducting CLTs in a calculation, you deduct the value of them from the NRB, and not the RNRB.

Question 15

There is a tapered withdrawal of the RNRB for estates with a net value of more than how much? And what is the tapered withdrawal amount?

Answer 15

£2 million (after deducting any liabilities but before reliefs and exemptions).
The withdrawal is at the rate of £1 for every £2 over the taper threshold.

Question 16

If a property is left to a discretionary trust, and the direct descendants are beneficiaries, does the RNRB apply? Explain.

Answer 16

Not usually because the trustees (not the beneficiaries) would then own the property.

However, if it’s passed in trust with an IPDI, and direct descendants have an interest in possession, then RNRB applies.

RNRB is also potentially available if property passes to a trust for a disabled person or a trust for a minor.

Question 17

How does the cumulation principle for IHT work?

Answer 17

All chargeable transfers over a seven-year period are added together (accumulated) and tax is payable once the nil rate band is exceeded. A transfer drops out of the cumulation once it is more than seven years old.

Question 18

If a UK-domiciled individual owns property abroad, is this liable to IHT?

Answer 18

Yes, property all over the world

Question 19

If an individual is domiciled outs ode of the UK, which property is liable to IHT, UK or abroad?

Answer 19

UK only

Question 20

Which factors need to be met for an individual to be deemed domiciled in the UK for IHT purposes?

Answer 20

Resident in UK for at least 15 of last 20 tax years (deemed apply from 16th year)

Born in UK with UK domicile of origin and return to UK (becoming resident) having obtained domicile of choice elsewhere (and have also been resident in UK in at least one out of two last tax years)

Question 21

For IHT purposes, UK deemed domiciled status is lost when?

Answer 21

Once an individual has been nonresident for at least four consecutive tax years.

Question 22

Is an individual’s UK bank account subject to IHT when they die if they were domiciled and resident elsewhere?

Answer 22

No, it is left out for IHT purposes

Question 23

Are investmentsin government securities liable to IHT?

Answer 23

No

Question 24

What is a chargeable transfer?

Answer 24

A transfer of value made which is not exempt

Question 25

What is a transfer of value?

Answer 25

It is a reduction in the donor’s estate as a result of a transfer. i.e you are transferring value away from the estate.

Question 26

When is an interest-free loan not a transfer of value?

Answer 26

If it is repayable on demand or on death

Question 27

What are the 3 types of ‘transfer of value’?

Answer 27

1. Exempt transfers
2. Potentially exempt transfers (PETs)
3. Chargeable lifetime transfers (CLTs)

Question 28

At what point are the 3 types of ‘transfers of value’ taxed and by how much?

Answer 28

1. Exempt transfers - never
2. Potentially exempt transfers (PETs) - become exempt if donor survives 7 years, so potentially never
3. Chargeable lifetime transfers (CLTs) - potentially immediately at 20% (25% if liability is met by the donor)

Question 29

Pension death benefits are exempt or liable to IHT?

Answer 29

Exempt, but will form part of your survivors estate