Death Estate and valuation Flashcards
Does death estate include anything acquired by reason of death (such as proceeds of life assurance policy)
Yes
Who pays tax on the death estate
Personal representative
Assets that pass to … are exempt from IHT
Spouse/Civil partner (outright or to trust in which they have interest in possession)
Charity
Qualifying political party
Deduct / don’t deduct from death estate
Debts incurred for full consideration
Deduct
Not gambling debts
Deduct / don’t deduct from death estate
Taxes imposed by law
Deduct
income and capital gains
Deduct / don’t deduct from death estate
Reasonable funeral expenses (inc tombstone)
Deduct
Deduct / don’t deduct from death estate
Unpaid debts if remain unpaid for commercial reason and not to obtain tax advantage
Deduct
Deduct / don’t deduct from death estate
Loans obtained to acquire or enhance excluded property (situated outside UK and individual entitled is UK Dom)
Don’t deduct
Where debt is charged on specific property the debt is
Deductible primarily from the property on which it is charged
QSR formula
Tax paid on first * relevant % * net transfer/Gross transfer
When does fall in value relief apply
Where property transferred within 7 years of death either
- if owned, the open market value on death is less than time of property
- If sold (to unconnected) by the transferee before death and sale proceeds were less than value at time of transfer
Fall in value relief does not apply to
Plant and machinery
Chattels with UL < 50 years
Estate entitled to RNRB if:
Dies on or after 6 April 2017
Own a home or share of one so that it is included on death estate
Home is inherited by direct descendant (children / grandchildren)
RNRB amount
£175,000
Value of a home for death estate
Open market value of the property less any liabilities secured on it (e.g. mortgage)
If death estate valued at more than £2m
RNRB is tapered away by £1 for every £2 the estate is worth more than £2m threshold therefore > £2.35m no RNRB
Tapering of RNRB is calculated on
Value of all assets less debts and liabilities
BUT BEFORE deducting exemptions such as spouse / charity exemptions / reliefs
NRB transfer
Between spouse
if spouse dies with used NRB, the unused proportion is transferred to the surviving spouse
Claiming the transfer of NRB
When surviving partner dies, personal representatives must make claim by later of
- 2years from end of month of death of survivor or
- three months from the date the personal representatives first act for the survive
HMRC can accept a late claim
Transfer of unused RNRB when
Surviving spouse dies after 5 April 2017
if die before, deemed RNRB 100k
IHT charge if 10% or more left to charity
36%
Net chargeable estate
Value of the estate after deducting all available reliefs, exemptions and remaining NRB but before deducting charity and RNRB.
When does reduced rate of IHT not apply
If personal representatives elect for it not to apply (benefit minimal, don’t want to incur cost of valuing items)
Value of a transfer of value is
the diminution in value of the transferor’s estate
Assets transferred are usually valued at
open market value
For lifetime transfers when part of an asset is given away to calculate value consider
Position before and after transfer
For IHT, quoted shares are valued at
Lower of 1/4 up and average marked bargain
Unit trust units are valued at
bid price (lower of the two prices - offer price and bid price)
Proceeds of a life assurance policy owned by a person on his own life are
included in death estate if not in trust
If individual dies owning life assurance policy on the life of someone else the amount included in estate for IHT is
The market value of the policy
overseas assets in the death estate are valued at
the sterling equivalent using the exchange rate giving the lowest sterling valuation
Less 5% for additional administration
Related property is defined as
Property related to property in the transferor’s estate which is
comprised in the estate of their spouse
held by a charity / political party
as a result of a transfer made by the transfer or their spouse
Valuing related property - two valuations
Higher property
Value of transferors interest as if no related property
proportion held by transfer of the value of the whole of the transferors interest plus related property
Proportion for related property not shares
Transfer at unrelated value / (value transferred + value related) * value of total related property owned
For shares calculate by number of shares
