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R03 Personal Taxation 2023/24 > 4 - Inheritance Tax (B) > Flashcards

4 - Inheritance Tax (B) Flashcards

B Lifetime transfers and transfers on death

1
Q

What is the IHT liability on transfers between spouses and civil partners?

A

None, as long as they are legally married or registered under the civil partnership act 2004.

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2
Q

What is the IHT annual exemption amount?

A

£3,000

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3
Q

Can the IHT annual exemption be carried over to the next tax year if not used?

A

Yes, for one tax year only

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4
Q

The IHT annual exemption is applicable only to what type of gifts?

A

Lifetime gifts

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5
Q

What is the small gifts exempt amount?

A

£250

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6
Q

Can the small gifts exempt amount be used in addition to the annual exemption if the lifetime gift is over £3,000?

A

No, you cannot use the exemptions together

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7
Q

How many times in a tax year can you use the small gifts exemption?

A

As often as you like, as long as you haven’t already used an exemption on the same person that tax year already

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8
Q

Does the small gifts exemption apply when gifting into trust?

A

No, must be an outright gift

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9
Q

What are the 3 rules that determine if a lifetime gift was gifted out of normal expenditure and therefore exempt?

A

Made out of normal expenditure
Made out of income
Transferor was left with sufficient income to maintain their usual standard of living

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10
Q

When is expenditure treated as ‘normal’ for a lifetime transfer to become exempt?

A

When it’s habitual or regular

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11
Q

Payments do not have to be a fixed amount to qualify as normal expenditure. True or false?

A

True.

Reference: Bennett v. IRC (1995).

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12
Q

List the 4 wedding/civil partnership gifts exemption amounts.

A

Donor is parent £5,000
Donor is remote ancestor (i.e grandparent) £2,500
Donor is party of the partnership (i.e spouse) £2,500
Donor is any other person £1,000

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13
Q

How long does the exemption last for gifts of educational purposes for children? Which children are inlcuded and excluded?

A

Until the tax year when the child becomes 18, or ends full-time education, whichever is the later.

Includes legitimate children, illegitimate, adopted and step-children, but excludes grandchildren and remoter relatives.

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14
Q

What is the IHT liability on gifts to charities and major national political parties?

A

Exempt, as long as it’s outright

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15
Q

Gifts to UK charities and major national political parties are totally exempt, with some exceptions where the gift is not outright, during life and on death.

A charity must meet 4 conditions to be a ‘charity’ for this purpose. What are they?

A

Established for charitable purposes
Registered with the charity commission or similar regulator
Run by fit and proper persons
Recognised by HMRC

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16
Q

What is the reduced IHT rate when a donor leaves a certain amount to charity?

A

36% if at least 10% of the net estate is left to a charity

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17
Q

If a portion of the estate is left to a political party, which 2 conditions should be met for IHT to become exempt?

A

At the last general election preceding the transfer:
Two party members elected to the House of Commons; or
One party member elected with at least 150,000 votes being given to party candidates.

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18
Q

Gifts for the national benefit are exempt of IHT, name 4 places where you could leave such a gift.

A

Museums
Libraries
Universities
National trust

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19
Q

Gifts of land to a housing association, liable or exempt of IHT?

A

Exempt

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20
Q

The estates of members of the armed forces are completely tax free in what circumstances?

A

On death if they die because of wounds received or diseases contracted on active service

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21
Q

The estates of members of the emergency services and humanitarian aid workers who die, are exempt from IHT in what circumstances?

A

A result of responding to emergency circumstances

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22
Q

When is a transfer potentially exempt?

A

When it’s not exempt

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23
Q

A PET is a lifetime transfer by an individual to which 3 persons/bodies?

A

Another individual, BARE TRUST, disabled trust

24
Q

Name the 3 consequences of making a PET.

A

No tax at the date of the gift
Gift does not have to be reported to HMRC
If donor survives for 7 years, the gift becomes fully exempt

25
Q

What happens to a PET if the donor dies within 7 years?

A

Gift becomes chargeable

26
Q

When a PET becomes chargeable, what date is it valued for tax purposes?

A

The date the PET was made, not the date at death

27
Q

In which circumstance might a PET that became chargeable, become IHT exempt?

A

If it falls within the nil rate band

28
Q

A donor dies one year after making a PET of a house worth £100,000 at the time of the gift, but £110,000 at death, what will be the valuation for IHT calculations?

A

£100,000
This is because PETs are charged at the value of the transfer, not the date of death

29
Q

What are the 4 taper reliefs on gifts if a donor survives for at least 3 years after the gift?

A

More than three but not more than four = 20%
More than four but not more than five = 40%
More than five but not more than six = 60%
More than six but not more than seven = 80%

30
Q

What is the IHT liability on transfers between spouses where they have since split up?

A

There is usually no IHT on transfers when a marriage or civil partnership breaks down, as long as they take place before the decree absolute. Even then it is possible to argue that there is no gratuitous intent.

31
Q

What is the annual exempt amount for gifting?

A

£3,000

32
Q

What happens to the IHT exempt amount for gifting if left unused?

A

It can be carried forward into the next tax year, but if still unused after that, it’s lost. The unsued amount for the current tax year must be used before the carry forward.

33
Q

The annual exemption and small gifts exemption can only be used towards which types of gifts?

A

Lifetime

34
Q

What is the small gifts exempt amount?

A

£250

35
Q

Small gifts exempt amount applies to gifts into trust. True or false?

A

FALSE

36
Q

The small gifts and annual exempt amount cannot be used together. True or false?

A

TRUE

37
Q

Expenditure must be what, to count as ‘normal’ for the purpose of being an IHT exempt lifetime transfer?

A

Habitual or regular

38
Q

Payment of premiums into a life policy for the benefit of the intended donor.

Chargeable of exempt transfer? Why?

A

Exempt, because it’s ‘habitual’, UNLESS the donor has already purchased an associated annuity on their life.

39
Q

What does the case of Bennett v. IRC (1995) suggest?

A

That ‘normal’ payments exempt of IHT do not have to be of a fixed amount, it just means that the donors standard of living must remain the same, after the transfer

40
Q

What are the 3 exempt amounts for wedding gifting?

A

£5,000 - parents
£2,500 - grandparents or spouse party to ceremony
£1,000 - anyone else”

41
Q

What is the IHT liability on lifetime transfers for maintenance of children such as education?

A

Exempt

42
Q

Do PETS have to be reported to HMRC?

A

No

43
Q

Gifts into which 2 types of trust are PETs?

A

Bare trusts and disabled trust

44
Q

If a gift is not exempt and not potentially exempt, what is it?

A

Chargeable

45
Q

What is the most common type of chargeable lifetime transfer?

A

Gift into a discretionary trust

46
Q

Chargeable lifetime transfers are immediately chargeable to IHT if over the NRB. True or false?

A

TRUE

47
Q

Do a married couple need to be living with each other for IHT between them on life and death, to be exempt?

A

No

48
Q

Where a transfer is being made by a UK domiciled individual to a spouse or civil partner who is not domiciled, what is the lifetime cap for exemption?

A

£325,000

49
Q

What is the IHT treatment on gifts out of surplus income?

A

Exempt

50
Q

Name 3 types of PETs

A
  1. Outright gifts to an individual (a transfer of property with no strings attached)
  2. Transfers into a bare/absolute trust
  3. Transfers into a disable trust
51
Q

PETs become chargeable if the donor dies within how many years of gifting?

A

7

52
Q

Any increases in the value of the asset gifted (PET) after the date is was given will be free from IHT. True of false?

A

True, value of the gift is used, not the value at the date of death

53
Q

What type of ‘transfer of value’ is a gift into a discretionary trust?

A

CLT

54
Q

What is the lifetime rate of IHT and when does it apply?

A

20% immediately on chargeable lifetime transfers, to the trustee (25% where met by the donor), if exceeding the nil rate band

55
Q

When can quick succession relief be used?

A

Within 5 years of the first deceased person

56
Q

What are the quick succession relief rates available?

A

Not more than one year = 100%
One to two years = 80%
Two to three years = 60%
Three to four years = 40%
Four to five years = 20%

57
Q

What are the 4 steps to calculating tax for quick succession?

A
  1. Work out tax on increase from death of first estate
  2. Work out tax on second estate
  3. Calculate quick succession relief
  4. Minus quick succession relief from tax on second estate

R03 Personal Taxation 2023/24 (47 decks)

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