Chapter 16: IHT Flashcards
Persons chargeable to IHT
Worldwide transfers of assets by UK domiciled individuals and
UK transfers by non-UK domiciled individuals
Transfers of value
It is the diminution in value in the donor’s estate
the measure is the loss for the donor not the increase in wealth
Exempt transfers
to spouse of civil partner
Potentially exempt transfers (PET)
Chargeable if donor dies within 7 years
Becomes exempt if donor lives more than 7 years
Chargeable lifetime transfer
To a trust
Tax rate: 20% if trustee pays tax
Tax rate: 20/80 (25% if donor pays the tax)
if dies within 7 years there is addition tax
assume donor pays tax unless told otherwise
Exceptions only against lifetime transfers
Small gifts
Marriage exemption
Annual exemption
normal expenditure out of income
Small gifts - £250 per donee per tax year, £251 no small gift allowance
Marriage -
£5000 by parent to child
£2500 by grandparents
£1000 by any other order
Annual -
£3000 allocated to lifetime transfers in strict chronological order
Used after all other exceptions
Unused portion can be carried forward for one year and used after annual allowance for the current year
normal expenditure out of income -
Typical and habitual payment over several years
Made out of income
did not affect standard of living
Calculation of lifetime tax on lifetime transfers
Ignore PETS (apart from using up AEs)
Value CLT using ‘diminution in value’ principle
If donor pays tax, diminution is the gross gift (gift plus tax)
gross gift is called gross chargeable transfer (gift less exception plus tax)
Nil rate band
‘Rolling’ nil rate band
used by gross chargeable transfers in the 7 years before a transfer and only remaining unused amount is available to set against the transfer
Nil rate band - transfers within 7 years of death
used against lifetime gifts made within 7 years of death (earliest first) and any nil rate band remaining after this can be used against the estate
Death estate
All legal debts are allowable including:
Funeral exp
Repayment and interest-only mortgage are deductible
Proceeds from a life insurance policy are included in the death estate
AE is not available
Transferring nil rate band
NRB on alive spouse is increased by proportion that corresponds to the proportion of the nil rate band unused by the first spouse
Residence nil rate band
Direct descendants (children and grandchildren) inherited main residence
175,000
Deceased must have lived in
Payment of IHT
Lifetime tax (CLT)
6 April to 30 September
01 October to 5 April
06/04 - 30/09
Tax due next 30 April
01/10 - 05/04
Tax due 6 months after the end of the month of trandfer
Payment of IHT
Death tax (lifetime gifts and death estate)
Due six months after the end of the month of death
