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Taxation ACCA > Chapter 24 - Inheritance tax > Flashcards

Chapter 24 - Inheritance tax Flashcards

1
Q

What is inheritance tax charged on?

A
  • A transfer of value
  • of chargeable property
  • by a chargeable person
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2
Q

When does a charge to inheritance tax arise?

A
  • On the death of an individual
  • on lifetime gifts with 7 years of the date of death
  • on some lifetime gifts which are taxed at date of gift
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3
Q

What is “a gift of any asset which results in a reduction in the value of the donors estate”

A

A transfer of value

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4
Q

How do you calculate the diminutive value (loss to donor)?

A

Value of estate before gift

Less: Value of estate after gift

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5
Q

If an individual is domiciled in the UK what are they liable to under IHT?

A

Worldwide assets

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6
Q

If an individual is not domiciled in the UK what are they liable to under IHT?

A

UK assets only (usually)

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7
Q

What are the thee types of lifetime gift?

A

Exempt
Potentially exempt transfers (PETs)
Chargeable lifetime transfers (CLTs)

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8
Q

What is the IHT treatment of Exempt gifts?

A

no IHT

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9
Q

What is the IHT treatment of PET gifts?

A

Become chargeable if the donor dies within 7 yrs of the date of gift.

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10
Q

What is the IHT treatment of CLT gifts?

A

Taxed immediately and also on death

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11
Q

What should gifts into trusts be treated as ?

A

CLT’s

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12
Q

Can transfers on death be a PET?

A

No

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13
Q

Name the four reliefs and exemptions for lifetime gifts?

A
  • Small gifts exemption
  • Marriage exemption
  • Normal expenditure out of income
  • Annual exemption
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14
Q

Name the exemption on lifetime gifts and death estate

A

Inter spouse exemption

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15
Q

What are the three key points of small gifts exemption?

A

Lifetime gifts are exempt if they are

  • an outright gift to an individual of no more than £250
  • Per recipient
  • Per tax year
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16
Q

If a person gifts someone £240 then a further £100 what happens?

A

Neither gifts are now exempt

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17
Q

How much can a parent gift with the marriage exemption?

A

£5000

18
Q

How much can a grandparent gift with the marriage exemption?

A

£2500

19
Q

How much can a groom or bride gift eachother with the marriage exemption?

A

£2500

20
Q

How much can a someone gift with the marriage exemption?

A

£1000

21
Q

What is the marriage exemption conditional on?

A

The marriage taking place

22
Q

Give two examples of Normal expenditure out of income

A
  • Payment of school fees by grandparent

- Payment into a child life insurance policy

23
Q

What are the two key points about Normal expenditure out of income?

A
  • Is made a persons normal expenditure

- Does not effect donors standard of living

24
Q

How much is the annual exemption against lifetime transfers?

A

£3000

25
Q

How is the AE applied?

A
  • Chronologically to the first gift of the tax year and so on
  • must be applied to the first gift each year even if PET
26
Q

What can you do with unused AE?

A
  • Be carried forward one year

- But only used after current years AE

27
Q

How do you calculate the chargeable amount of a PET or CLT?

A

Value of estate before transfer
Less: Value of estate after transfer

Less: Exemptions

28
Q

When is the Nil rate band applicable?

A

At the time of the gift

29
Q

What is the current Nil rate band?

A

£325,000

30
Q

What are the rules if the Donee pays the tax?

A
  • Gift is referred to as a gross gift

- taxed at 20%

31
Q

What are the rules if the Donor pays the tax?

A
  • The gift is referred to as a net gift
  • the donors estate is reduced by value of gift and tax on gift
  • Taxed at 25%
32
Q

If the question does not state who pays the tax, who do we assume pays the tax?

A

Donor

33
Q

What is the due date of the tax for a CLT?

A

6 April to 30 September - 30 April following year

1 October to 5 April - Six months after the end of the month of the CLT

34
Q

What is the death rate of tax?

A

40%

35
Q

When is IHT as a result of death due?

A

Earlier of
6 months after the end of the month of death
or
When filed with HMRC

36
Q

Who are direct descendants?

A

Children or grandchildren

37
Q

What is the additional Residence nil rate band (RNRB)?

A

Lower of

£150,000
or
Value of the main residence

38
Q

When does the date of death have to be for RNRB?

A

after 6 April 2017

39
Q

How do you calculate the value of the main residence?

A

After deduction payments on mortgage for the property.

40
Q

When is the payment due on the death estate?

A

Earlier of

Delivery of the estate accounts to HMRC

6 months after the end of the month of death

Taxation ACCA (27 decks)

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