Chapter 21: Inheritance Tax Flashcards
What is the nil rate band?
Estates not exceeding £325,000
If an estate exceeds the nil rate band after applying any available tax reliefs, what rate will it be taxed at?
40%
Lifetime transfers to trusts and companies are always chargeable to inheritance tax and may suffer additional tax if the transferor dies within 7 years. True or false?
True
Are lifetime transfers to individuals immediately chargeable?
No
If a person is domiciled in the UK, will they be liable for IHT on all assets around the world?
Yes, individuals domiciled in the UK are liable for IHT on all worldwide assets
If a person is domiciled outside the UK, but has assets in the UK, will they be liable for IHT?
- No, individuals domiciled outside of the UK will only be liable for IHT on UK assets.
- Any assets owned outside of the UK = excluded property
Will IHT be payable if a person makes a transfer without gratuitous intent?
- Generally gifts made without gratuitous intent are disregarded for IHT purposes
Does expenditure for family maintenance amount to a chargeable transfer?
No
What is the loss to donor principle?
IHT is calculated by assessing the loss to the donor’s estate rather than the gain to the recipient of the gift
What are the rules in relation to ‘related property’?
- If similar property is owned by a spouse, this = related property
- If the asset has a greater value when taking into account the property owned by the spouse than on a standalone basis, the asset is valued at the higher amount
Generally, are lifetime transfers chargeable to IHT?
No
Is IHT payable on transfers made to a spouse or civil partner during lifetime or on death?
- No, transfers to spouses are completely exempt from IHT
- Exception - if spouse domiciled outside of UK, only the first £325,000 is exempt
Are gifts to charities exempt from IHT?
Yes, if the charities are in the UK or the European Economic Area
A person can make a small gift each year which is exempt from IHT. What is the value of this small gift?
£250
Is the small gift exemption cumulative or all or nothing?
All or nothing
Is there a limit to a the number of donees who can receive a small gift which is not subject to IHT?
No limit
On marriage, what is the maximum amount a parent can give for there to be an exemption for IHT purposes?
£5,000 per parent
On marriage, what is the maximum amount a grandparent can give for there to be an exemption for IHT purposes?
£2,500 per grandparent
On marriage, what is the maximum amount a bridge / groom can give before the wedding for there to be an exemption for IHT purposes?
£2,500
On marriage, what is the maximum amount all others can give for there to be an exemption for IHT purposes?
£1,000
Is the marriage exemption all or nothing?
No, the exemption can be used when transfers exceed the limits. E.g. A parent can use £5,000 of the exemption when gifting £10,000
If a lifetime transfer constitutes ‘normal expenditure out of income’, is it subject to IHT?
Normal expenditure will be exempt if:
- The expenditure is habitual or regular
- The donor has sufficient income to maintain a normal standard of living after making gift
N.B. No monetary limit
An annual exemption is available to reduce the IHT value of lifetime transfers. What is the value of this exemption?
£3,000 per year
Can the annual exemption be carried forward?
- The annual exemption can be carried forward by one year
- If carried forward, the current year must be used before the previous year
In what order is the annual exemption set against gifts?
In chronological order - earlier gifts before later gifts
A PET will become a chargeable transfer if the donor dies within what timeframe?
7 years from the date of making the transfer
Will gifts to bare trusts (trusts under which the beneficiaries decide when assets are to be distributed) be chargeable lifetime transfers?
No, these are PETs
CLT is immediately payable to what two types of trusts?
- Discretionary trusts
- Interest in possession trusts
Are gifts to companies PETs?
Gifts to companies are chargeable lifetime transfers
Can annual exemptions be used to reduce the value of CLT payable?
Yes
Who pays tax on CLTs?
- Either the donor or the trustees
- Tax is payable if the gift exceeds the NRB of £325,000 after deducing the available annual exemption
What is the tax rate applicable to CLTs?
20% if trustees pay
25% if donor pays
When considering inheritance tax, what is the cumulation period?
Taking account of any other CLTs made in the past 7 years
PETs are not considered
When considering tax, will the NRB and IHT rates at the time of death apply? Or, instead, will the rates at the time tax is due apply?
The rates at the time of death
