Chapter 24 - Inheritance tax Flashcards
What is inheritance tax charged on?
- A transfer of value
- of chargeable property
- by a chargeable person
When does a charge to inheritance tax arise?
- 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
What is “a gift of any asset which results in a reduction in the value of the donors estate”
A transfer of value
How do you calculate the diminutive value (loss to donor)?
Value of estate before gift
Less: Value of estate after gift
If an individual is domiciled in the UK what are they liable to under IHT?
Worldwide assets
If an individual is not domiciled in the UK what are they liable to under IHT?
UK assets only (usually)
What are the thee types of lifetime gift?
Exempt
Potentially exempt transfers (PETs)
Chargeable lifetime transfers (CLTs)
What is the IHT treatment of Exempt gifts?
no IHT
What is the IHT treatment of PET gifts?
Become chargeable if the donor dies within 7 yrs of the date of gift.
What is the IHT treatment of CLT gifts?
Taxed immediately and also on death
What should gifts into trusts be treated as ?
CLT’s
Can transfers on death be a PET?
No
Name the four reliefs and exemptions for lifetime gifts?
- Small gifts exemption
- Marriage exemption
- Normal expenditure out of income
- Annual exemption
Name the exemption on lifetime gifts and death estate
Inter spouse exemption
What are the three key points of small gifts exemption?
Lifetime gifts are exempt if they are
- an outright gift to an individual of no more than £250
- Per recipient
- Per tax year
If a person gifts someone £240 then a further £100 what happens?
Neither gifts are now exempt
How much can a parent gift with the marriage exemption?
£5000
How much can a grandparent gift with the marriage exemption?
£2500
How much can a groom or bride gift eachother with the marriage exemption?
£2500
How much can a someone gift with the marriage exemption?
£1000
What is the marriage exemption conditional on?
The marriage taking place
Give two examples of Normal expenditure out of income
- Payment of school fees by grandparent
- Payment into a child life insurance policy
What are the two key points about Normal expenditure out of income?
- Is made a persons normal expenditure
- Does not effect donors standard of living
How much is the annual exemption against lifetime transfers?
£3000
How is the AE applied?
- Chronologically to the first gift of the tax year and so on
- must be applied to the first gift each year even if PET
What can you do with unused AE?
- Be carried forward one year
- But only used after current years AE
How do you calculate the chargeable amount of a PET or CLT?
Value of estate before transfer
Less: Value of estate after transfer
Less: Exemptions
When is the Nil rate band applicable?
At the time of the gift
What is the current Nil rate band?
£325,000
What are the rules if the Donee pays the tax?
- Gift is referred to as a gross gift
- taxed at 20%
What are the rules if the Donor pays the tax?
- 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%
If the question does not state who pays the tax, who do we assume pays the tax?
Donor
What is the due date of the tax for a CLT?
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
What is the death rate of tax?
40%
When is IHT as a result of death due?
Earlier of
6 months after the end of the month of death
or
When filed with HMRC
Who are direct descendants?
Children or grandchildren
What is the additional Residence nil rate band (RNRB)?
Lower of
£150,000
or
Value of the main residence
When does the date of death have to be for RNRB?
after 6 April 2017
How do you calculate the value of the main residence?
After deduction payments on mortgage for the property.
When is the payment due on the death estate?
Earlier of
Delivery of the estate accounts to HMRC
6 months after the end of the month of death
