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Advanced Tax 20/21 > Ch 14 + 15: IHT > Flashcards

Ch 14 + 15: IHT Flashcards

1
Q

What 3 exemptions are there for IHT life transfers and death estate?

A

Spouse/civil partner
Gifts to UK charities
Gifts to qualifying political parties

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2
Q

What 4 exemptions are there for IHT lifetime transfers?

A
  • £3000 AE per tax year, c/f for 1 year
  • £250 small gifts
  • £5000/£2500/£1000 marriage gifts £5k parent, £2.5k grandparent, £1k anyone else
  • Normal expenditure out of income where there is a pattern of gifts not impacting the donor lifestyle
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3
Q

When can you transfer the nil-rate band?

A

Any unused NRB on death of the first spouse can be used by the second spouse
*ONLY transferred to calculate death tax NOT lifetime tax

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4
Q

When must you claim the transfer of NRB?

A

Within 2 years from the end of the month of death of the second spouse

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5
Q

How is the amount transferred for IHT calculated?

A

Take the % unused and apply the % to the current NRB

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6
Q

What is the payment date for LIFE tax?

A

Transfer between 6 April - 30 September = Next 30 April

Transfer between 1 October - 5 April = 6 months after month of transfer

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7
Q

What is the payment date for DEATH tax?

A

Due 6 months after the month of death

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8
Q

What % IHT do you pay on LIFE tax?

A

Donee = 20%
Donor = 25%
*If question is silent assume donor is paying

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9
Q

What % IHT do you pay on DEATH tax?

A

40% if the donor dies within 7 years (may be tapered if lives for 3+ years after gift)

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10
Q

When does Quick Succession Relief apply?

A

If the recipient of a chargeable transfer dies within 5 years of acquiring property (either as a lifetime or death gift)

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11
Q

How do you calculate the amount related to QSR?

A
  1. Calculate tax on death estate as normal
  2. Deduct the tax credit:
    Tax paid on 1st transfer x net transfer/ gross transfer x relevant %
    *relevant % goes down in 20% increments with <1 year = 100%
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12
Q

What 4 types of assets qualify for BPR?

A
  • unincorporated trading business e.g. sole trader or share in partnership : 100% BPR
  • shares in unquoted trading company (Ltd): 100% BPR
  • shares in quoted trading company if transferor has control (plc): 50% BPR
  • Land, buildings, P&M owned personally and used in a partnership, or a company controlled by individual: 50% BPR
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13
Q

How long do you need to own the assets qualifying for BPR?

A

2 years, unless:

  • where the property transferred replaced other business property
  • property passed on death from a spouse/civil partner; the deceased spouse is counted as ownership
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14
Q

What are the extra conditions for BPR and lifetime transfers?

A

BPR is available at death if:

  • the donee still uses the asset as a business asset OR
  • the donee disposes of the asset and re-invests the proceeds in qualifying replacement property within 3 years of disposal
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15
Q

What value is given to quoted shares for IHT?

A

They are valued at the lower of:
1/4 up - highest - lowest/ 4 + lowest
average marked bargains - highest + lowest/2

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16
Q

What trust is always valued at the lower price?

A

Unit trusts

17
Q

How much admin expenses can be claimed on death?

A

Up to 5% of the value of the property, but must be spent

18
Q

When do related property rules apply?

A

If they give you a higher value than applying the normal rules
i.e. calculate both and take the higher

19
Q

How do you calculate the share of related property for shares?

A

Donor shareholding %/ Total related shareholding x total related value of related shares
OR
Donor shareholding x share price (based on total related shareholding)

20
Q

How do you calculate the share of related property for other assets?

A

MV of donor assets/ MV of donor’s assets + MV of related assets x total related value of related assets

21
Q

When is BPR on assets not available?

A

BPR is not available if assets have not been used wholly in the business in the last 2 years or are not required for the running of the business

22
Q

How do you calculate the value of the shares eligible for BPR?

A

Value of shares transferred x (relevant business property in company/ total assets of company)

23
Q

What does APR apply to?

A

agricultural property

24
Q

What assets qualify for APR?

A
  • land used to grow crops or rear animals
  • farm buildings
  • shares in farming companies (that the individual controls)
25
Q

What is the ownership period for APR assets?

A

2 years for the farmer

7 years for the landlord

26
Q

How does APR interact with BPR?

A

APR take preference e.g. shares in farming companies

BPR is available on the balance on the business not relieved by APR

27
Q

What is a Gift With Reservation of Benefit? (GWRB)

A

Where the donor reserves some benefit for themselves after making a gift (e.g. transferring a house and continuing to live in it)

28
Q

What is the implication of GWRB?

A

The gift is taxed as a PET using market value at the date of the gift AND
either:
- if the reservation still exists at the donors death then it is included in their death estate, or
- if the reservation is removed in the 7 years before death, tax as a PET on the date removed

*this could lead to a double IHT charge, HMRC choose the highest payable

29
Q

What are the 4 conditions to vary a will?

A
  • In writing by the original beneficiary
  • signed by all beneficiaries, old and new
  • within 2 years of death
  • for no consideration
30
Q

What are some benefits of lifetime transfers (5 things)?

A
  • use of lifetime exemptions
  • taper relief
  • no death tax if you survive 7 years after the transfer
  • transfer value is set at the date of the transfer
  • fall in value relief if the asset falls in value
31
Q

What are some benefits of transfers in death estate?

A
  • No CGT
  • ability to transfer the residence nil rate band
  • more chance of reaching 2 or 7 year ownership periods which would then qualify for APR or BPR
32
Q

What are the two charges a discretionary trust might have to pay?

A
  • Exit charge on value of capital distributions up to a max of 6%
  • Principal charge every 10 years on capital value of the trust up to a max of 6%
33
Q

If an individual receives a distribution from a discretionary trust how is it treated?

A

Gross up by 100/55, IT tax credit of 45% against IT liability

Advanced Tax 20/21 (23 decks)

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