6: Inheritance Tax Flashcards
Methodology for IHT calculations
Proformas
Stage 1 Lifetime gifts (including marriage or annual exemptions)
Stage 2 Lifetime tax (20/80 if the donor is paying but 20% if the
trustees are), always state the GCT.
Stage 3 Death tax on gifts in 7 years to death and also on the death
estate. Remember to reduce the tax for taper relief and any
lifetime tax already paid
Nil rate bands – show the workings and remember they are calculated
differently for lifetime tax and death tax:
Lifetime tax: take the NRB at the time of the gift but reduce for
GCTs in the previous 7 years
Death tax: take the NRB at death and reduce for GCTs in the 7 years
before the gift/transfer
Make sure you can apply BPR correctly (using Hardmans)
Exemptions on lifetime gifts and transfers on death
Transfer to spouse or civil partner
Gifts to charities
Gifts to political parties
4 Exemptions on lifetime gifts only (comes off at beginning of pro forma)
Gifts in consideration of Marriage/civil partnership exemption (in TT)
Small gifts exemption (details in TT)
Normal expenditure out of income (in TT)
Annual exemption (AE) (details in TT)
Lifetime IHT on gifts: 2 things must be done when the donor pays the tax
Use a grossed-up rate of 25% (as your IHT%)
Reflect the tax paid in the gross value of the gift
How to calculate value of asset transferred (used in situations where stocks are worth more with greater holding)
Value of holding prior to transfer less value of holding after transfer
Quoted shares are valued at:
Lower of 2 things:
- Quarter up rule:
Lower quoted price + 1/4(higher quoted price - lower quoted price) - Average of highest and lowest marked bargains
5 inheritance tax reliefs
- Fall in value relief
- Transfer of nil rate band to spouse
- Quick succession relief
- Reduced rate for estates leaving 10% or more to charity
- Business property relief
