Chapter 4 - Inheritance Tax Flashcards
What is the death rate of IHT?
40%
What is the lifetime rate of IHT?
20%
If an individual leaves 10% or more of their net estate to charity what rate of IHT is paid?
36%
How much is the current standard Nil Rate Band (NRB)
£325,000
How much is the Residence Nil Rate Band (RNRB) for tax year 2017/18?
£100,000
Name 3 conditions applying to the RNRB?
- Where a home is being left to a direct descendent – a child and their lineal descendants (foster, step and adopted children are included for this purpose)
- The value of the home is after deducting any outstanding mortgage
- If the home is worth less than the RNRB the RNRB is reduced to the value of the home
- It is tapered for estates over £2m
- Only available on 1 home but able to choose which if they own more than 1 at time of death as long as it has been their main residence at some point
- Can inherit deceased spouses RNRB
How much of a deceased spouses NRB can the surviving spouse inherit?
The surviving spouse can inherit any unused % that was not used on first death. The percentage is applied on the NRB that applied at date of death.
For example someone dies in the year the NRB was £250,000 and left £50,000 to their children then £50,000/£250,000 = 20% used.
80% can therefore be inherited by the surviving spouse.
With regard to domicile what is UK IHT charged on?
For UK domiciled individuals IHT is charged on worldwide assets.
For non UK domiciled individuals IHT is charged on UK assets
What is the loss to the estate principle?
A chargeable transfer for IHT is calculated on the loss to the estate principle. Not the consideration of value but what has been lost by the estate.
For example;
Joe gives away one chair worth £2,000 from a set of six worth £30,000, now the remaining 5 are worth £15,000. The loss to the estate is £15,000 so this is chargeable for IHT not the £2,000.
What is gratuitous intent?
A transfer not at arms length to a connected person
Name 5 IHT exemptions.
- Spousal exemption
- Annual exemption
- Small gifts
- Normal expenditure
- Gifts on marriage
- Education and maintenance
- Charity
- Political parties
- National benefit
- Death on active service
How does the spousal exemption work?
Transfers between spouses unlimited and not subject to IHT
How much is the annual exemption and how does it work?
£3,000 per year, can carry forward 1 years if not used, can be offset against larger gifts
How much is the small gift exemption and how does it work?
Up to £250. To unlimited number of people. Can not be offset against larger gifts
How does the gifts from normal expenditure work?
Must not reduce standard of living. Must be from surplus income NOT CAPITAL
How much are the gifts on marriage exemptions and how does it work?
£5,000 parent,
£2,500 grandparent or to other party in marriage,
£1,000 any one
Must be made before the marriage
How does the education and maintenance exemption work?
All payments are exempt
Up until tax year when child becomes 18
Or
Ends full time education, whichever is later
Illegitimate, adopted and step-children are included
Not grandchildren or more remote relatives
Dependent relative of donor is exempt
How does the gifts to charity exemption work?
Any gifts to EU based charity is totally exempt
How does the gifts to political parties exemption work?
Any gifts to political party is totally exempt providing;
2 x MP elected at last general election
1 x MP + 150,000 votes overall
How does the gifts for the national benefit exemption work?
Any gifts totally exempt if left to; Museums Libraries Universities National Trust Land to Housing Association etc
What are the main IHT reliefs available?
Taper relief
Business property relief
Agricultural property relief
Woodlands relief
How does taper relief work?
Relief given for surviving a period of time over 3 years but not quite 7 after making a gift.
Relief applies to eventual IHT due on a gift over the NRB
What are the rates of taper relief?
Surviving 3 - 4 years = 80% of the full charge
Surviving 4 - 5 years = 60% of the full charge
Surviving 5 - 6 years = 40% of the full charge
Surviving 6 - 7 years = 20% of the full charge
How does business property relief work?
The business or interest in a business must be owned for 2 years and cant be the subject of a binding sale.
100% relief for shares in unincorporated businesses (including AIM shares)
50% relief for shares in listed companies
