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R3 > Ch 4 - IHT > Flashcards

Ch 4 - IHT Flashcards

1
Q

What is the NRB?

A

£325,000

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2
Q

What is the rate of IHT above the NRB?

A

40%

36% if 10% left to charity

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3
Q

How much of an estate must be left to charity before the IHT rate is reduced to 36%?

A

10% net estate

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4
Q

What unused allowances can be transferred to a surviving spouse?

A

NRB & RNRB

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5
Q

How is the unused band from first death transferred to the survivor on second death based on the current nil rate band?

A

Proportionally

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6
Q

What is the RNRB?

A

£175,000

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7
Q

If a mortgage is secured on a property, how does this affect IHT?

A

Any mortgage secured on the property must be deducted before valuing the home

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8
Q

If the home is valued at less than RNRB, what happens to the RNRB?

A

Reduced to value of home

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9
Q

How is the RNRB adjusted if estate > £2m?

A

Reduced by £1 for every £2

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10
Q

Is the RNRB available if an estate is left to a discretionary trust? Why?

A

No as the trustees will be the legal owner not the direct descendant

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11
Q

Is the RNRB available if an estate is left to a trust with immediate post-death interest? Why?

A

Yes if direct descendants are beneficiaries

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12
Q

What two things can a transfer of assets during an individual’s lifetime be classified as?

A

CLT or PET

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13
Q

When are transfers considered a PET?

A

If made to an individual, specified trust (bare trust) or disabled trust

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14
Q

When are transfers considered a CLT?

A

If made to an unspecified trust or the donor retains an interest

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15
Q

All chargeable transfers over what period are added together? (Cumulation)

A

7 years

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16
Q

When is a chargeable transfer chargeable to IHT?

A

If amount over 7 years exceeds NRB

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17
Q

What IHT is due on a PET that has been made more than 7 years before death?

A

No IHT at time of transfer or on death - exempt

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18
Q

What IHT is due on a CLT that has been made more than 7 years before death?

A
  • Chargeable when made using the nil rate band in force at that date
  • Not chargeable on death
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19
Q

What is the 14 year rule/cumulation principle?

A

When calculating the IHT due on a PET/CLT made within the 7 years of death, CLTs made within the 7 years prior to the gift must be considered to calculate the NRB available

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20
Q

Is IHT due on worldwide property for UK residents?

A

Yes

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21
Q

What IHT is due on worldwide property for non-UK residents?

A

UK property only liable

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22
Q

When is a person considered UK domiciled?

A

Resident for at least 15 out of last 20 years

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23
Q

If someone was born in the UK, and then returns to UK and become resident having been previously domiciled elsewhere, how will they be deemed to be domiciled for CGT, income tax & IHT purposes?

A

Income tax/CGT = deemed to be domiciled straight away

IHT = Only deemed domiciled if UK resident for at least 1 out of previous 2 tax years

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24
Q

What is an individuals estate on death?

A

Assets minus liabilities plus certain gifts made within 7 years of death

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25
Q

What is the transfer value used to calculate the IHT required on transfer?

A

Loss to estate (not market value)

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26
Q

For commercial transactions, where full consideration has been received, what IHT is due?

A

No IHT as no loss to estate

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27
Q

What IHT is due on transfers between spouses?

A

None - exempt

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28
Q

If a receiving spouse is not UK domiciled, what is the spousal exemption limited to?

A

£325,000 (NRB)

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29
Q

What is the annual exemption for lifetime gifts?

A

£3000

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30
Q

How many years can unused annual exemption for lifetime gifts be carried forward?

A

Only until next year

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31
Q

What is the small gifts allowance?

A

£250 per gift

unlimited times to different people

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32
Q

What are the IHT allowances for wedding gifts?

A

£5000 for parents
£2500 for remote ancestors
£2500 for bride/groom to prospective spouse
£1000 for any other person

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33
Q

What is ‘normal expenditure’? (exempt from IHT)

A

Out of income, regular and standard of living not reduced - not required to be fixed amount

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34
Q

Payments for a child’s maintenance, education or training are exempt until when? until the later of the child turning 18 or the child leaving full-time education

A

Later of:

  • Child turning 18
  • Child leaving full time education
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35
Q

Transfers to dependent relatives are subject to what IHT?

A

Exempt

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36
Q

What is Business Relief for?

A

Transfers of business property held for at least 2 years

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37
Q

What transfers are exempt from IHT?

A
  • Interspousal
  • Gifts for education/maintenance
  • Gifts to charities
  • Gifts to political parties
  • Gifts for national benefit (ie National Trust)
  • Death on active service
38
Q

What is Business Relief not available for?

A

Not available for businesses that mainly deal with investments/securities/stocks, including land and property investments

39
Q

What is 100% Business Relief available on?

A
  • Interests in unincorporated business/AIM companies

- Shares in EIS and SEIS

40
Q

What is 50% Business Relief available on?

A
  • Controlling shares in listed companies

- Land, buildings, plant and machinery

41
Q

What is Agricultural Relief available for?

A

Agricultural land, crops and farm buildings, but not animals or equipment

42
Q

When is 100% Agricultural Relief available?

A
  • Owner occupied farms

- Farm tenancies exceeding 12 months

43
Q

When is 50% Agricultural Relief available?

A

Land let under tenancies

44
Q

If agricultural and business relief are both available, which is given first?

A

Agricultural

45
Q

What is Woodlands Relief?

A
  • Avail for growing timber in UK/EEA
  • Relief only avail for timber and not land itself
  • Relief only applies to transfers on death
46
Q

Does a PET need to be reported to HMRC at the time of gift?

A

Not at time of gift as no tax due

47
Q

How is a PET treated if the donor did not survive 7 years?

A

Gift becomes chargeable and any tax owed is payable by the donee

48
Q

Does a PET need reporting to HMRC if it becomes chargeable?

A

Yes - if does not fall in NRB and tax is due

49
Q

What are the taper relief rates?

A

Years between gift and death - IHT payable

0 to 3 years - 100%
3 to 4 years -	80%
4 to 5 years - 60%
5 to 6 years -	40%
6 to 7 years- 20%
50
Q

Is a gift into a bare trust treated as a PET or CLT?

A

PET

51
Q

Is a gift into a disabled trust treated as a PET or CLT?

A

PET

52
Q

Is a gift into a discretionary trust treated as a PET or CLT?

A

CLT

53
Q

What is the rate of a lifetime charge?

CLT over NRB

A

20%

54
Q

What tax is due on a CLT on death, if the donor dies within 7 years?

A

If the donor dies within 7-years, further IHT will apply on death, subject to the same taper relief as PETs

55
Q

When is IHT chargeable on death?

A

If the value of the estate on death, plus any CLTs or PETs in the last 7-years, exceeds the NRB/RNRB

56
Q

Who is liable to IHT

A

Legal Personal Representatives (LPRs) of

57
Q

What is the 14 year rule?

A

Go back 7 years from CLT to find out NRB available on CLT

58
Q

What property is excluded from estate on death?

A
  • Pension funds
  • Reversionary interests in trust (future interest)
  • Property outside the UK (where the owner is not UK domiciled)
  • Holdings in authorised unit trusts and shares in OEICs, where the beneficial owner is not UK domiciled
59
Q

When calculating the net estate for reduced rate (charity), what can be subtracted from the estate?

A

NRB & spousal exemption

NOT RNRB

60
Q

What is quick succession relief?

A

If property in estate was received by chargeable transfer in 5 years before death, tax charged on death is reduced by percentage of IHT paid on previous transfer

61
Q

What are the quick succession relief rates?

A 
Period Between Transfer and Death -	Relief Rate
Less than 1 year - 100%
1 to 2 years - 80%
2 to 3 years - 60%
3 to 4 years - 40%
4 to 5 years - 20%
62
Q

What is the formula to calculate quick succession relief credit?

A

(Tax paid on first transfer × net transfer* )/(gross transfer)
× relevant %

*net transfer = gross transfer - IHT paid

63
Q

When two individuals die simultaneously, who does the law dictates died first? Who does IHT dictate died first?

A
  • General law presumes eldest dies first

- IHT assumes same time

64
Q

What is the transfer of a NRB based on?

A

Based on the current NRB + the proportion of the NRB not used on first death is added

65
Q

What is a gift with reservation? How is this treated?

A

Donor retains benefit - treated as remaining in donor’s estate

66
Q

What gifts are excluded from gifts with reservation treatment?

A
  • Transfers between spouses/civil partners
  • Small gifts (£250)
  • Gifts for marriage (within the limits)
  • Gifts to political parties
  • Gifts for national benefit
  • Gifts to charity
67
Q

What is a Pre-Owned Assets Tax (POAT?)

A

Income tax charged on benefit of having free/low-cost enjoyment of assets formerly owned or provided the funds to purchase - treated as an addition to their taxable income in the year which they enjoy the benefit

68
Q

What assets may be chargeable to POAT?

A
  • Land inc living accommodation (based on market value)
  • Chattels
  • Intangible assets
69
Q

No POAT tax is charged if the value of the benefit is what value?

A

£5000 or less

70
Q

For chattels and intangible assets, what POAT is charged?

A

Value is a percentage of the capital value equal to official interest rate (2.5% 20/21)

71
Q

POAT applies to all disposals post what year?

A

18/03/1986

72
Q

How can you avoid POAT?

A
  • Elect for asset to be subject to IHT on death (complete IHT 500)
  • If completed, subject to gift with reservation rules
73
Q

If the transfer of value of a life policy takes place during the policy holders’ lifetime, what value is used for IHT purposes?

A

Surrender value - surrender value used cannot be less than the total premiums paid, minus any sums previously paid out

74
Q

Where a donor has paid tax on a CLT, what must you do to the value of the transfer get the total value of the loss to estate?

A

Donor paid - Gross up (divide by 0.8)

75
Q

Who is liable to pay IHT in a bare trust?

A

Beneficiary

76
Q

Who is liable to pay IHT in a Trust for Vulnerable Beneficiaries?

A

Trustees

77
Q

Is a Life Interest/Flexible Interest In Possession Trust treated as a PET or a CLT?

A

Pre Mar 2006: PLT

Post Mar 2006: CLT

78
Q

Entry, exit and period charges apply to IIPs when they were made after?

A

Mar 2006

79
Q

A gift to a Discretionary Transfer is taxed at what rate of the NRB?

A

20% (lifetime transfer)

80
Q

Who is responsible for calculating, reporting and paying period charges on a discretionary trust?

A

Trustees

81
Q

When does a period charge occur?

A

10th year anniversary on discretionary trust - current value over NRB is charged

82
Q

What is the available NRB used on the period charge calculation/10th year anniversary?

A

= NRB - CLTS made by settlor in 7 years prior - distributions of capital to beneficiaries in 10 year period

83
Q

What is the rate of tax for a periodic charge over NRB?

A

6%

84
Q

What is the formula for calculating the effective rate of tax (period charge/discretionary trust)?

A

Effective rate = (tax due on excess)/(total value of trust) x 100

85
Q

When do Exit Charges apply?

A

Capital distributions to beneficiaries - happens within first 10 years and lifetime IHT was payable at outset

86
Q

How do you calculate exit charges?

A

Trust value x effective rate x (number of complete calendar quarters/40)

87
Q

When is a Trust for Bereaved Minors or a 18-25 Trust created?

A

Created on death of a parent by will or intestacy, or through Criminal Injuries Compensation Scheme

88
Q

Do periodic/exit charges apply to Trusts for Bereaved Minors?

A

No

89
Q

When does the beneficiary receive absolute interest on a Trust for Bereaved Minors and 18-25 Trust?

A

Trust for Bereaved Minors: 18

18-25: 25

90
Q

When are Exit Charges levied on an 18-25 trust?

A

Age 18

91
Q

If a persons property is less than the RNRB, what is the available RNRB limited to?

A

Property value

R3 (10 decks)

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