IHT 1: Basics Flashcards
IHT on Doms vs Non-Doms
Doms
- pay IHT on all worldwide assets
Non-Doms
- only on transfer of assets in UK
- assets outside UK are excluded property
What transfers are not counted as loss to donor (ie not considered at all for IHT)?
Ones without gratuitous intent (with unconnected person)
- like buying something at a shop
- even if you underpaid/overpaid
Expenditure for Family Maintenance
- not treated as gift
- ie school fees, looking after dependant/former spouse
How do you value transfers made? Shares and Related Property?
Loss to the Donor Principe
- valued as loss to value suffered by estate
Shares
- look at differences in value between the estates initial shareholding and current shareholding after transfer
- NOT at the value of the shares given away
Related Property
- similar property held by spouse that increase the value of was the donor holds
- eg. if spouse also holds shares in company and their shares together are worth more (due to having higher overall percentage/control)
- Then take the value of donors shares (at higher rate due to related property) as starting point to calculate loss to donor
- (Ds shares alone = £10k but if you take into account that spouse also holds shares then Ds shares ALONE STILL - £15k) then take £15k
What are the different taxable life time transfers?
PET
- gift made within 7 years before death
- if made longer than 7 years before death not taxable
- tax only paid on death
Chargeable Lifetime Transfer
- tax charged on transfer NOT death
What are exempted lifetime transfers and gifts?
- Spouse
- all gifts to spouse not taxable
- UNLESS recipient spouse if NON-DOM then only exempt up to £325k (rest is PET) - Gifts to Charity
- Small Gifts
- gift up to £250 per person per year
- if gift exceeds £250 then whole thing is taxable as PET - Gifts on Marriage (wedding present)
- first £X pounds of the value of gift is exempt depending on relationship - Normal Expenditure out of income
- means habitual or regular payments - Annual Exemption
- Annual exemption of £3000 per year/per person
- for gifts that do not fall in above
- applies to gift chronologically
- can be carried forward 1 tax year ONLY
How must is the Gifts on Marriage Exemption
First £X amount of the gift will be exempt (limit for couple as whole not once for bride once for groom)
- parent - up to £5000
- Grandparent - up to £2,500
- Bride to Groom (before wedding) - £2,500
- All Others - up to £1000
What might count under Normal Expenditure under income?
Expenditure to happen year after year and be out of income
- gifts of cash made (B-Day, X-Mas etc.)
- life assurance premiums
- personal pension premiums
What is a PET
Any gift made to individual that is not/above exemptions
- chargeable if donor dies within 7 years
- tax due paid by recipient
- Value = value of gift - any exemptions
What is a Chargeable Lifetime Transfer
If not exempt gift or PET including:
- Gifts to Trusts
- UNLESS charitable trust or Bare Trust
- Bare trust is when beneficiary is in control of asset and will be treated as PET - Gifts to Companies
- rare to just give gift to company
How are Chargeable Lifetime Transfer taxable?
Immediately
(Value of CLT) - (remains annual exempt amount from same year £3000) - (remaining annual exempt amount remaining form last year £3000) - (remaining life time nil rate band £325k)
Remember annual exempt amount of £3000 pa may be used up by previous PETs but can use any remaining for year before
Tax Rate for CLT?
After deducting exemption and nil rate band
- if trustee pays taxed at 20%
- if donor pays taxed at 25%
How must be calculate CLT if there are more than one?
They cumulate
- so must to take into account of CLTs made 7 years before CLT we are considering
- deduct the annual exemptions
- deduct CLT chronologically from current Nil Rate Band until this is used up
- pay either 20% or 25% on excess
