IHT

Question 1

Define Transfer of value

Answer 1

Disposition (Gift) of assets by a transferor which results in a fall in value of the transferors estate

Question 2

Define Diminution in value

Answer 2

Fall in value of the transferor’s estate is known as diminution in value and is the starting point in calculating the value of a gift for IHT

Question 3

Define a Discretionary Trust

Answer 3

A Trust where no beneficiary is entitled by right to any income or capital, it is left up to the discretion of the trustees which of the beneficiaries is to benefit from the trust and how they are to benefit

Question 4

Interest in Possession Trust

Answer 4

Trust where one or more of the beneficiaries has the right to receive the income of the trust, the capital passing to other beneficiaries when the interest in possession comes to an end

Question 5

IIP Trust for Tax purposes

Answer 5

• Beneficiary has right to income and enjoyment of asset while alive
• Lifetime gift into IIP is subject to same rules as discretionary
• Where gift into IIP trust is made on death of settlor, those assets are included in their death estate

Question 6

Bare Trust

Answer 6

Property in bare trust is held by the trustee as it’s legal owner on behalf of the beneficiary, who is entitled to the trust property and any income arising from it. There is no interest in possession and the trustees cannot exercise any discretion over the trust property or income

Question 7

Bare Trust treatment

Answer 7

treated as outright gift to beneficiary and PET by settlor
Beneficiary entitled to trust property, it will be included into their estate on death

Question 8

Dispositions which are not transfers of value

Answer 8

Dispositions without gratuitous intent
Dispositions made for the maintenance of the transferors family (spouses, children, dependants)
Gratuitous dispositions which constitute allowable expenditure for purposes of income tax and corporation tax

Question 9

IHT Excluded property - main examinable example

Answer 9

Foreign assets of non-UK Dom

Question 10

Transfer to spouse civil/partner
Exempt/Chargeable

Answer 10

Exempt
Lifetime transfer made on death
transfer on death to interest in possession Trust

Question 11

Gifts to charities
Exempt/Chargeable

Answer 11

Exempt - Lifetime and on death

Question 12

Gift to political parties
Exempt / Chargeable

Answer 12

Exempt if qualifying political party
(had at the last general election before transfer of value made 2 members of parliament elected to House of Commons or one member and not less than 150k votes were given to candidates)

Question 13

How much is the annual exemption on lifetime transfers

Answer 13

£3000
used in chronological order even against PETS which are initially exempt.
Excess can be carried forward one year

Question 14

How much is marriage/civil partnership exemption for a parent to one of the parties?

Answer 14

£5,000
Use before AE

Question 15

How much is marriage/civil partnership exemption for a grandparent to one of the parties?

Answer 15

£2,500
Use before AE

Question 16

How much is marriage/civil partnership exemption for non-parent/grandparent to one of the parties?

Answer 16

£1000
Use before AE

Question 17

How much is the small gift exemption

Answer 17

£250 lifetime transfers in any one tax year to one transferee
cannot deduct from larger gift

Question 18

Exemption for normal expenditure out of income

Answer 18

If made as part of normal expenditure out of income
made out of transferors income
after taking account of all transfers which are part of normal expenditure out of income, transferor is left with sufficient income to maintain standard of living
must show regular pattern of giving/intention of regular pattern of giving

Question 19

Nil rate band

Answer 19

325,000
Not exempt but charged at 0%

Question 20

IHT when trustees specifically agree to pay

Answer 20

20%

Question 21

How many years look back when calculating NRB

Answer 21

7 Years

Question 22

When Transferor pays IHT on CLT to trust

Answer 22

They have made net chargeable transfer of value - tax computed on GCT of value, therefore gross up transfer by (100/80)
or - tax is paid at 25%

Question 23

GCT if transferor pays IHT on lifetime transfer to Trust

Answer 23

GCT is net transfer plus IHT
Assume they pay

Question 24

NRB Life tax

Answer 24

NRB @ gift - look back 7 years GCT/CLT

Question 25

NRB Death tax

Answer 25

NRB @ Death less GCT/CLT/Failed PET 7 years of gift

Question 26

NRB Death estate

Answer 26

NRB @ Death less GCT/CLT/Failed PET 7y before death

Question 27

Standard IHT %

Answer 27

40%

Question 28

PETS are transfers to

Answer 28

Individual (other than spouse/civil partner)
Bare Trust