IHT Flashcards
Calculation on PET of £500k and death in 3 to 4 yrs after plus insurance that could be put in place.
£500k- £325k NRB is £175k
£175k x 40% is £70k
Apply taper relief due to death in 3 to 4 yrs.
Taper relief is tax bill of 80% so PET £56k
To cover: Level term assurance on Rons life of £130k which is £325k times 40% and covers the loss of NRB to estate as a whole. Term 7 yrs
Gift intervivos policy on Rons life with Arthur as beneficiary as Arthur will pay the tax. To cover £70k reducing tax liability over 7 yrs. establish both plans in trust for Arthur.
RNRB- only avail to offset on death
Withdrawn gradually when estate over £2mn
Duties of an executor
Determine assets and liabilities of the estate Collect in the assets Pay any debts the estate owes Get grant of PROBATE Complete accounts Calc and claim any transferable RNRB Calc and pay IHT Distribute assets in accordance with Will
Discounted Gift Trust ADVANTAGES
Imm gift for IHT, discount outside of estate
Settlor Ron can take tax deferred withdrawals of up to 5% of the initial sum invested
No GWR rules apply to withdrawals
Inv growth imm outside settlor Ron’s estate
Use of discret trust settlor retains control over beneficiaries
Discounted Gift Trust DISADVANTAGES
Loss of access to capital
No flexibilty over payments
Fund could be exhausted before Ron dies
Withdrawals could become chargeable events after 20 yrs once original capital has been repaid
Periodic 10 yr exit charges apply
Investment element means client must be comfortable with ATR/CFL
Ron must be medically underwritten
Considerations for recommending DGT
Client age/ health- was he likely to survive 7 years?
Was he happy to be medicaly underwritten?
Potential IHT to estate
Can client afford to give capital away?
Can he spend additional income so its no longer in estate?
ATR/CFL?
Fixed amt of income to be eroded over time by inflation?
Client make other gifts in 7 yrs?
Should bond be in single or joint names? Consideration to wife’s circumstances?
Dying intestate:
If not married entire estate to kids,
Kids under 18 so statutory trust
Until kids age 18 or earlier marriage
Kids are minors under 18
If married inherit all personal property of estate of deceased plus £270,000 plus hakf or remqining estate
To make a will
Of sound mind Over 18 No pressure In writing Signed by Arthur Presence of two witnesses Who must also sign
Income tax calcs
Itemise all income Allowable deductions Reduce PA Extend bands- not money pirchase or occupational Apply reducers
Power of Attorney
Taxation of onshore investment bonds
Taxation of REITS
Taxation of VCTs
30% income tax relief Tax relief limited to tax liability Unclaimed tax relief on VCt cannot be carried back No tax relief for NTP Divs are paid out free of tax No BR on them
Taxation of EIS
Dividends are taxable
Bankruptcy
Deed of variation
Role of trustees
Self assessment
Resi and domicile
15 out if 20 years in UK deemed dom and will remained deemed dom for 6 consecutive years after leaving UK for inc tax and CGT
For IHT deemed dom is loat once non resi for 4 consecutive tax years
NICs
Excluded Property Trust
Disc trust with offshore bond Protects inv held outside the UK from UK IHT Need to be NON UK dom at time of trust No UK IHT on death Exempt transfer under UK PROPERTY LAW Can be trustee and retain control Discretion over beneficiaries Free from Uk IHt in death
What makes a Maximum Investment plan Qualifying?
Policy term 10 years or more
Premiums paid yearly or more frequently
Premiums in a 12 mth period must not exceed twice premiums in any other period
1/8th of the total premiums paid for 10 years
Sum assured must not to be less than 75% of the premiums payable during the policy term
Gain on encashment tax free
Marriage allowance
They are married
Her income below personal allowance, she is a NTP
He pays 20% tax
She makes a claim to HMRC as lower earner
Transfer £1250 of her personal allowance to him
Saving him £250
Their tax codes will be adjusted
Can be backdated 4 yrs
Backdated amount paid from hmrc as a lump sum
IHT process
Establish total estate Establish PETs and CLTS 7 yrs Establish NRB- any transferable? Establish RNRB- any transferable? Establish NRB minus PETS and gifting allowance Minus chargeable estate minus NRB
CLTs- personal estate goes down in value but another estate does not go up. Gifts into trust but not bare or absolute
Payment due 6 months after end of month
If settlor pays then its taxed at 25%
CLTs result in immediate tax charge if they, along with any other chargeable lifetime transfers in prv 7 yrs cumulative total exceed the NRB
CLT
Result in imm tax charge if they along with previous 7 yrs cumulative total of CLTs exceed NRB
Does that include NRB transferred from deceased spouse?
Payments on account
Eachboayment on account is half the previous years liability
Rent a room relief
Cannot offset expenses from rent a room relief
Topslicing
Only required if gain on bond goes into HRT
What is IHT?
A tax on a persons estate on death and on certain lifetime transfers
Uk dom or deemed dom IHT due on worldwide assets.
If non UK dom only UK based assets fall within the UK IHt net.
If married one non dom. Non dom can elect to be deemed dom in order to benefit from spousal transfer exemption. If not then only UK assets taxed for IHt but only inherit £325k plus NRB of other as spousal exempt transfer
Nil rate band
Only available to offset on death
Exempt from IHt
Taper relief
POAT
Insuring against IHt
Domicile set at birth
Death within 7 yrs
7 yrs from date of gift not date of death
