IHT Flashcards
IHT calculation for transfer on death
- transfer - anything in estate, survivorship or beneficially entitled. nothing written in trust for someone else
- value - market value. discount jointly owned property Deduct debts / liabilities/expenses
- reliefs / exemptions - nil rate band 325k, RNRB 175K, business relief, charity relief, spouses, agricultural relief
- calculate tax NRB (consider 7yrs previous and anything unused by spouse) and then 40% remainder or 36% if 10% of net estate goes to charity
IHT calculation for PET
1 transfer - anything individual to individual or into disabled trust. not for maintenance or education of child or dependent
- value - market rate. related property rule applies
- reliefs / exemptions - business, agriculture, charity, spouse, small gifts 250, normal expenditure, marriage, annual exemption 3k or max 6k
- rest is PET but chargeable is dies within 7 years
marriage exemption amounts
parents 5k
remoter ancestors 2.5k
anyone else 1k
impact of business relief if original owner dies within 7 years
if new owner no longer owns it then business relief is revoked but if they still own it then no impact
or if the new owner dies before original owner must own item on the new owners death
IHT calculation for LCT
1 transfer - into company or trust (not disabled trust) anything that isn’t a PET
2 value - market rate
3. exemptions reliefs - same as PET - no small gifts relief
4. calculate NRB (consider LCT in past 7 yrs but not PET) Rest taxed at 20%
when does RNRB not apply
not applicable to PET or LCT
not if estate value is too high - reduce by £1 for every £2 over 2m
Effect of death on PET
consider removing business rate relief
calculate NRB - PET that become chargeable and LCT in 7 years before transfer in question
tax at 20%
Apply tapering relief
tapering relief
1-2: 100% 2-3:100% 3-4:80% 4-5:60% 5-6:40% 6-7 years : pay 20% of charge
effect of death of LCT
recalculate if die within 7 years of transfer
consider removing business relief
calculate NRB (consider chargeable PET and LCT within 7 years of transfer in question)
tax at 20% - use lower rate if different at time of death and time of transfer
apply tapering relief
give credit for any IHT paid at time of transfer
what if IHT on a LCT is lower when recalculated at time of death than it was when paid at time of transfer
no refund
what is the estate rate
the average rate of tax applicable to each item of property in the estate
how to calculate the estate rate (percentage)
total amount of IHT paid / total chargeable estate x100
how to calculate estate rate (amount for item)
total amount of IHT paid / total chargeable estate X value of item
who is liable for the IHT on the property in a trust immediately before the death
Trustee and anyone in whom the trust property subsequently vests or for whose benefit the property is subsequently applied are concurrently liable
how long do you have until IHT is due
IHT is due 6 months after the end of the month of death
can you obtain a grant before paying IHT
no - must pay IHT before obtaining a grant
do you pay interest on IHT
only if not paid within the 6 months
if IHT is paid in instalments, how many instalments are there and when is the first one due
10 instalments
first is due 6 months after the end of the month of death
how to calculate how much IHT is attributable to the instalment property
use estate rate
which property is eligible for IHT instalments
land
businesses or interest in business
any shares that control company
any unquoted uncontroling shares if they are worth 10% of nominal shares of company and worth 20K or payment in one go would cause hardship
IHT attributable to the shares and any other installment property amounts to at least 20% of the IHT payable on the estate
is interest payable on installments
For shares, business property or agricultural land - interest is due only if not paid on time
for all other installment property - interest is payable on outstanding amount of IHT as well as if not paid on time
do the outstanding IHT instalments become due if the instalment property is sold
yes all outstanding tax and interest becomes due
how long to pay IHT on a PET
6 months after end of month of death
how long to pay LCT
if transfer made 5 April - 10 Oct then pay by 30 April following year
if made outside those dates then 6 months after end of month in which LCT is made
additional LCT payable on death due 6 months after end of month of death
who is liable for IHT on death
PR and B are concurrently liable
can T decide to change who is liable for IHT on death
no - statutory rule is that PR and B are concurrently liable and this cannot be changed
but T can change who bears the burden by making express provision in the will
if the will gives a gift subject to tax then who has the burden of the tax
the recipeint
who is responsible for tax on LCT
recipient and trustee are both responsible - if trustee pays it will be less
who is responsible for IHT on PET
recipient but if they don’t pay within 12 months after end of months of death then PR
who is responsible for IHT on property that T gave away during their life but reserved a benefit in which they continued to enjoy until their death
recipient but if unpaid within 12 months of end of month of death then PR liable
discount for jointly owned land when identifying value of transfer for IHT
10% if commercial
15% if residential
how to calculate value of shares when identifying value for IHT
take 1/4 off difference between lower price and higher price and add that 1/4 to lower price
what can be deducted from value of transfer when calculating IHT
liabilities owed at time of death and funeral expenses
what should be included in the transfer when calculating IHT
everything passing through the will
everything T had a beneficial interest in
the capital if T was entitled to all the interest even if only life tenant
not the capital if remainderman and life tenant is still alive
anything passing through survivorship
property subject to a reservation at death (gave away legal ownership subject to retaining possession and enjoyment)
NOT anything written into trust for someone else
do spouses pay IHT
no
do cohabitants benefit from spouse exemption for IHT
no
does spouses located outside the UK benefit from spouse exemption for IHT
yes but it is capped at 325K
requirements to be eligible for business property relief
must have owned property for 2 years before death (include period owned by deceased spouse unless lifetime transfer)
business must be trading in nature
deductions made if business property relief applies
100% - business, interest in business, unquoted shares
50% - quoted shares with voting control and land, buildings, plan and machinery owned by T but used in business if T had voting control
what is agricultural property relief
reduces the agricultural value of the property (the value if the property was only ever allowed to be used for agriculture)
part of value of property above the agricultural value won’t qualify for this relief but may get business relief
requirements for agricultural property relief
property occupied by T for agricultural purposes for 2 years priori to death or 7 years by someone else for agriculture
deductions made if agricultural property relief applies
100% if T had right to vacant possession immediately before death or letting after Sept 1995
50% reduction in all other cases
can RNRB and NRB be used together
yes
can RNRB be used on PET or LCT
no
how much is RNRB
£175k
when does RNRB apply
qualifying dwelling occupied by T at any time, forms part of Ts estate and inherited by close relative (issue, spouse or spouses’ issue)
can you claim your spouses RNRB
yes surviving spouse claim any unsued RNRB not used by spouse who dies first
reduction of RNRB when estate is over £2m - calculation
if estate is £2m or more RNRB is reduced by £1 for every £2 over £2m
175,000 - (value of estate - 2m /2) = adjusted RNRB
how long to deliver the completed IHT form to HMRC
6 months
or 12 months but will incur interest
when is an estate excepted from IHT
all falls within NRB (can use spouse NRB too)
T was never resident in UK and had limited assets in UK
when can T used deceased spouse NRB in addition to their own
if their deceased spouses didn’t use any of their NRB but cannot use it if decease spouse used some of it themselves
which IHT form is used for an excepted estate
IHT205 - send to probate registry
which IHT form is used if there is IHT t pay
IHT400 send to HMRC
which form does HMRC send to probate registry to confirm IHT has been paid so registry can issue grant
IHT421
how long to submit IHT400 if you wrongly submit IHT205
6 months from when you discover that the estate is not excepted from IHT
can HMRC insist you submit a IHT400 even if you have submitted IHT205
yes within 35 days of issue of grant if they think its not excepted
are PRs still liable for installments once the property is transferred to B
yes so keep some money back for this
what is a corrective account
altered account of IHT to HMRC made by PR when all variations are known
what is a clearance certificate
PR can apply for one from HMRC to confirm all IHT is paid
impact of a clearance certificate
discharges all people, including PR, from IHT liability unless there is fraud or non-disclosure of material facts
what is IHT loss relief
when assets are sold for less than their value at date of death loss can reduce IHT liability
when can you use IHT loss relief
if asset sold within 12 months of death
how to use IHT loss relief
swap sale price with market price and recalculate IHT
