CH22 - IHT Flashcards
Transfer value basis
Loss to donor usually open market value, unless shares
Chargeable persons
All UK domiciled people
What gets charged
the value of all of the net assets in the individual’s estate at the date of death
any lifetime gifts made in the seven years before death, provided they are not exempt transfers.
Certain lifetime gifts at date of gift
Gifts into trusts
These are all chargeable lifetime transfers, it is not exempt or a potentially exempt transfer
How PETs work
If donor dies within 7 years, then it is chargeable
Small gift exemption
£250 per recipient per year (totality)
Further exemption: ‘Normal’ gifts
If not a transfer of capital wealth e.g. payment of a grandchilds school fees or payments into life insurance policy for a child
Annual Exemption
First £3k of transfers, doesn’t matter if there is a PET, it uses it up anyway
Can carry forward one year only.
Marriage exemption
£5k by a parent
£2.5k by grand parent or remote ancestor
£2.5k from the other party
£1k from anyone else
Marriage has to take place
Inter-spouse exemption
FULLY
Proforma Lifetime IHT on a CLT
Value of estate before transfer X
Value of estate after transfer (X)
=Transfer Value X
Less: full exemptions (spouse) (X)
Less: Specific exemptions
- Marriage exemptions (X)
- Annual exemptions (always last) (X)
=Chargeable Amount X
Payment of lifetime IHT date
If CLT date 6 April - 30 Sept = 30 April following year
If 1 Oct - 5 April = Six months after the EOM of CLT
If donee pays the tax
Gross gift = 20% tax
If donor pays the tax
Value of estate reduces by value of gift and tax payable 25%
Actual Proforma for IHT gift tax
Transfer value
Less:
AE PY £3k
AE CY £3k
= Chargeable Amount
Less NRB - £325k
Taxable amount
IHT Payable - 20% trustee, 25% donor
Gross chargeable amount = same as CA, but increases by tax paid if donor pays
Rules for the Proforma CLT 7 year periods
The NRB of 325k can be reduced by the trasnfer value less AE of £3k or £6k.
If the next gift is within 7 years, the NRB of 325k minus the gross chargeable carries forward as an allowance.
Each instance is within 7 years of each other.
If the donor pays, this is the amount C/F for the next 7 years that used up the NRB
CLT or PET?
Gift into a trust = CLT. Gift to daughter PET
PETs
Only become chargeable if the donor dies within 7 years, these still take the AE(s) per year, but aren’t taxable e.g. TYU 5
What happens when someone dies?
IHT payable throughout the lifetime is only on CLTs (Trusts)
When someone dies, PETs become chargeable, so there’s an IHT on death as well, a second!
How to - IHT on death
Pull up the death curtain, look back 7 years and include PETS, find the furthest away within the 7 years, and then look to see if there’s any CGTs (EXCLUDE PETS) as these prior 7 year ones will be included in the NRB.
Same as before except now PETs are chargeable and there’s no £3k AE per year.
IHT is 40% of the taxable amount MINUS Taper relief
PLUS IHT paid in lifetime from above
REMEMBER: the Gift values are the gross chargeable amounts after AE removals = the C/F Value
Taper relief chart
0-3 years 0%
over 3 under 4 - 20%
over 4 under 5 - 40%
over 5 under 6 - 60%
over 6 under 7 - 80%
Payable date
Always due six months after EOM of date
Nil rate band on death calc
Death date itself look back 7 years and remove the chargeable amounts against the NRB
IHT Paid during lifetime and on death
That tax also adds on death of that specific CLT (not PETs as they aren’t chargeable during lifetime)
How to - IHT Payable on death with other assets
Add up all other assets to get ta value
Remove exempt gifts to the partner
This gives GROSS CHARGEABLE ESTATE MINUS:
NRB Value on death MINUS:
Less GCT’s 7 year prior to death (includes PETS)
= TAXABLE AMOUNT *40% = IHT on Chargeable estate
Residence Nil band
If leaving a residence and it’s main residece up to £175k removed
Value of the estate split
Gross chargeable less:
IHT is to HMRC
Specifics
Remainder
Transfer of NRB on death
Carry over the unused band percentage and add on. Remember NRB on death always usually 325k, but differs the with NRB to calc the percent remaining on
NRB on death claim of spouse
Only look back 7 years of death - EACH INSTANCE in isolation, remove any legacies noted.
On death it’s gross chargeable transfers/gifts.
RNRB
Lower of 175+175 if spouse doesn’t include main residence in estate
OR
Main residence of spouse remaining minus o/s interest payments
Reasons to leave assets a generation further down
You skip the tax of say your brother inheriting it, paying IHT, and then his son paying tax too
Why gift assets even within 7 years of dying
When you gift, you gift at that value, when you die, the value has increased, you are taxed at that value
Taper relief
