CH22 - IHT

Question 1

Transfer value basis

Answer 1

Loss to donor usually open market value, unless shares

Question 2

Chargeable persons

Answer 2

All UK domiciled people

Question 3

What gets charged

Answer 3

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

Question 4

Gifts into trusts

Answer 4

These are all chargeable lifetime transfers, it is not exempt or a potentially exempt transfer

Question 5

How PETs work

Answer 5

If donor dies within 7 years, then it is chargeable

Question 6

Small gift exemption

Answer 6

£250 per recipient per year (totality)

Question 7

Further exemption: ‘Normal’ gifts

Answer 7

If not a transfer of capital wealth e.g. payment of a grandchilds school fees or payments into life insurance policy for a child

Question 8

Annual Exemption

Answer 8

First £3k of transfers, doesn’t matter if there is a PET, it uses it up anyway
Can carry forward one year only.

Question 9

Marriage exemption

Answer 9

£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

Question 10

Inter-spouse exemption

Answer 10

FULLY

Question 11

Proforma Lifetime IHT on a CLT

Answer 11

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

Question 12

Payment of lifetime IHT date

Answer 12

If CLT date 6 April - 30 Sept = 30 April following year
If 1 Oct - 5 April = Six months after the EOM of CLT

Question 13

If donee pays the tax

Answer 13

Gross gift = 20% tax

Question 14

If donor pays the tax

Answer 14

Value of estate reduces by value of gift and tax payable 25%

Question 15

Actual Proforma for IHT gift tax

Answer 15

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

Question 16

Rules for the Proforma CLT 7 year periods

Answer 16

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

Question 17

CLT or PET?

Answer 17

Gift into a trust = CLT. Gift to daughter PET

Question 18

PETs

Answer 18

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

Question 19

What happens when someone dies?

Answer 19

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!

Question 20

How to - IHT on death

Answer 20

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

Question 21

Taper relief chart

Answer 21

0-3 years 0%
over 3 under 4 - 20%
over 4 under 5 - 40%
over 5 under 6 - 60%
over 6 under 7 - 80%

Question 22

Payable date

Answer 22

Always due six months after EOM of date

Question 23

Nil rate band on death calc

Answer 23

Death date itself look back 7 years and remove the chargeable amounts against the NRB

Question 24

IHT Paid during lifetime and on death

Answer 24

That tax also adds on death of that specific CLT (not PETs as they aren’t chargeable during lifetime)

Question 25

How to - IHT Payable on death with other assets

Answer 25

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

Question 26

Residence Nil band

Answer 26

If leaving a residence and it’s main residece up to £175k removed

Question 27

Value of the estate split

Answer 27

Gross chargeable less:
IHT is to HMRC
Specifics
Remainder

Question 28

Transfer of NRB on death

Answer 28

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

Question 29

NRB on death claim of spouse

Answer 29

Only look back 7 years of death - EACH INSTANCE in isolation, remove any legacies noted.

On death it’s gross chargeable transfers/gifts.

Question 30

RNRB

Answer 30

Lower of 175+175 if spouse doesn’t include main residence in estate
OR
Main residence of spouse remaining minus o/s interest payments

Question 31

Reasons to leave assets a generation further down

Answer 31

You skip the tax of say your brother inheriting it, paying IHT, and then his son paying tax too

Question 32

Why gift assets even within 7 years of dying

Answer 32

When you gift, you gift at that value, when you die, the value has increased, you are taxed at that value
Taper relief