Ch18: Inheritance Tax - Scope and Transfers of Value Flashcards
(1) Scope of IHT (2) Transfer of Value (3) Exemptions (4) Types of Lifetime Transfers - PET/CLT (5) Calculations of Lifetime Tax on Lifetime Transfers (6) Death Tax on Lifetime Transfers (7) Death Estate (8) NRB & Death Estate (9) Spouses & Civil Partners - Transferable NRB (10) Tax Planning (11) Payment of IHT
AEA to Lifetime Transfers is?
AEA = £3,000
Unused amount can be C/F for a maximum of 1 year.
What are the 3 types of Marriage Exemptions?
(1) Parent Gifting Child for Marriage - £5,000 exempt.
(2) Linear Ancestors (e.g. Grandparents) - £,2500 exempt.
(3) Anyone else (e.g. Nephew) - £1,000 exempt.
Are transfers between Spouses / Civil Partners exempt?
Yes.
How much is the Small Gift Exemption?
£250 per donee.
Exceeds limit = Exemption is lost.
True / False - Normal expenditure out of income is exempt?
TRUE.
Must show a regular pattern of giving and the donor must have enough income to retain a standard of living.
Is IHT chargeable AT THE TIME a PET is made?
No.
Is IHT chargeable if the Donor LIVES 7 YEARS?
No, gift is exempt.
Becomes chargeable if the donor DIES WITHIN THE NEXT 7 YEARS.
When do CLTs become chargeable?
(1) At the time the gift is made (LIFETIME RATES)
(2) At the time of death (DEATH RATES) if the donor DIES WITHIN 7 YEARS
- Payable by DONEE.
What is the formula used for CLTs if the donor dies within 7 years?
IHT Payable @ 40%
LESS Any Available NRB
LESS Lifetime Tax Paid
Tax Rate if Trustees and Donee’s pay?
20%
Tax Rate if the Donor pays?
25%
Death Rate Tax Rate?
40%
What is meant by Residence NRB (RNRB)?
- Deceased person dies ON / AFTER 6 April 2017.
- Deceased person OWNED A HOME which they lived in.
- MAIN RESIDENCE gets passed down to a DIRECT DESCENDANT.
Available RNRB is the LOWER OF:
(1) £175,000 + Any Transferred RNRB from Spouse
(2) Value of Main Residence Passing to a Direct Descendant, AFTER DEDUCTING any Repayments.
Available NRB for the Death Estate:
(1) MAXIMUM NRB (£325,000) + Any Transferred NRB from Spouse.
(2) Lifetime Transfers in the 7 Years Before Death (CLT / PET that have become chargeable).
SUMMARY OF PAYMENTS OF IHT:
LIFETIME TRANSFERS
(1) CLT made between 6 April - 30 September will be taxed on what date?
(2) Who is primarily liable to pay it?
(3) Can TUSTEES agree to pay it?
(1) CLTs made between 6 April - 30 September will be taxed on:
30 April following the END of the TY.
(2) DONOR is primarily liable to pay the tax.
(3) TRUSTEES may agree to pay the tax.
SUMMARY OF PAYMENTS OF IHT:
DEATH TAX
(1) Who is liable for Lifetime Gifts?
(2) When are these Lifetime Gifts due to be taxed?
(1) DONEE’s are liable to pay the Lifetime Gifts.
(2) Due 6 months from the end of the month of death.
SUMMARY OF PAYMENTS OF IHT:
DEATH TAX
(1) Who is liable for Gifts of Estates?
(2) When are these Gifts of Estates due to be taxed?
(1) The PR of the deceased are liable to pay the Death Tax.
(2) Due 6 months from the end of the month of death OR on Delivery on Account.
Inheritance Tax Planning -
(1) How the ‘Use of Exemptions’ can be used to plan?
USE OF EXEMPTIONS =
- Make regular lifetime gifts out of income as it will be EXEMPT from the £3,000 AE.
- Marriage exemptions -
(1) Marriage of Child = £5,000
(2) Linear Ancestors = £2,500
(3) Anyone Else = £1,000 - Passing assets in death estate = Spouse/Civil Partner exemptions will avoid IHT payable when the first spouse passes.
Inheritance Tax Planning -
(2a) How ‘Making Gifts Earlier’ can be used to plan?
MAKING GIFTS EARLIER =
- Higher chance of the DONOR surviving for 7 years after making the gifts = Avoids the Death Tax on transfer.
- Survive minimum 3 years of the 7 years = TAPER RELEIF = Reduced IHT Payable.
Inheritance Tax Planning -
(2b) What are the DRAWBACKS of ‘Making Gifts Earlier’?
- Gift of RESIDENTIAL PROPERTY = RNRB would apply.
- Gift of an assets results in a large chargeable gain. Therefore may be worthwhile to retain it until death as there is a tax-free uplift.
= Ensures that the DONEE received the asset at MV at the date of the DONOR’S death.
Inheritance Tax Planning -
(3) How ‘Making Use of the NRB’ can be used to plan?
MAKING USE OF THE NRB =
- Gifts to trusts are chargeable - so if it is within the NRB = NO IHT would be payable when the gift is made.
- Need to wait 7 years in life before making another gift (as we get another NRB every 7 years).
- RNRB can only be used if the main residence is passed down to a DIRECT DESCENDANT.
