IHT

Question 1

When is IHT charged?

Answer 1

1. A chargeable transfer made during a persons life (LCT) – these are gifts creating a trust fund
2. A potentially exempt transfer (PET) – these are gifts to individuals (not on trust), only subject to IHT if the transferor dies within seven years of making the gift
3. On death – because you are deemed to make a chargeable transfer of your estate

Question 2

Calculating the IHT payable

Answer 2

1. Identify the transfer of value – is it an LCT or PET
2. Find the value transferred
3. Apply any relevant exemptions and reliefs
4. Calculate tax at the appropriate rate

Question 3

LCT tax bands and rates

Answer 3

2021/22:

1. £0- £325,000 is charged at 0%
2. £325,001 and above is charged at 20%
3. If the settler dies within seven years of the LCT they will be required to pay an extra 20% of IHT on the part that exceeded £325,000

Question 4

Culmination period

Answer 4

7 years

Question 5

Step 1: Property included in the transfer of value

Answer 5

1. Property which passes under the deceased will or on an intestacy – the deceased was entitled to such property beneficially before he died
2. Property to which the deceased was beneficially entitled immediately before his death but which does not pass under his will or intestacy
3. Property included because of special statutory provisions which includes:
   a) certain trust property
   b) property given away by the deceased in his lifetime but which is subject to a reservation at the time of death

Question 6

Step 2: Find the value transferred

Answer 6

1. Assets in the estate are valued for IHT purposes at the price which the property might reasonably be expected to reach if sold on the open market immediately before the death
2. Each asset in the estate must be valued and reported to HMRC
3. When valuing land if it is jointly owned in equity a reduction of 10 to 15% is allowed

Question 7

Debts and expenses

Answer 7

Liabilities owed by the deceased at the time of death are deductible for IHT purposes

Question 8

Step 3: apply any relevant exemptions and reliefs

Answer 8

1. Transfers between spouses/civil partners
2. Gift to charities
3. Gift to political parties
4. Gifts for national purposes
5. Gifts for public benefit

Question 9

Liability, burden and payment of tax

Answer 9

1. Payment is due six months after the end of the month in which the transfer takes place
2. If the transfer is between April 6 and September 30 in the tax year I HT is due on the 30th of April of the following year
3. Primary build and pay tax falls on transfer