IHT Flashcards
What is quick succession relief?
Available where property of deceased had passed to them by a chargeable transfer in 5 years before death
Tax charged reduced by % of IHT paid on earlier transfer
% are in tax tables
% only relates to tax on the net increase of the estate of second to die
- Calculate tax on estate as usual
- Credit given = tax paid on 1st transfer x net transfer (take off tax from inherited value) /gross transfer x %
What are the downsizing rules for RNRB?
Availability of RNRB is protected where a person has downsized or ceased to own home
Provided assets of an equivalent value or passed to direct descendants.
What is spousal exemption for spouse who is non-uk domicile
£325,000
Would also benefit from deceased spouse available NRB
How can a non-don elect to be UK domiciled after first death, how affects IHT?
Make an election to HMRC witching 2 years of first death
Backdated to date of marriage
Means would have own NRB RNRB and spouse allowances would be transferable
No IHT as spousal exemption
Who is responsible for paying tax on a failed PET
The donee
If the donee does not pay the tax the personal representatives of the estate are liable
Who is responsible for reporting and paying IHT on an estate and by when?
Personal representatives Make an IHT return to HMRC within 12 months of death
Must be paid by the end of the 6th month after the person died
What is taper relief?
If donor survives 3 years after gift a reduced percentage of full IHT death rate is used to calculate tax
E.g 3-4 years = 20% of 40% = reduce death rate by 8% to 32%
Doesn’t reduce value of transfer this is still used for purposes of calculating NRB
How are charitable gifts treated for IHT on death?
A reduced rate of 36% where 10% + of net estate is left to charity
Net estate = after deduction of exemptions, reliefs and NRB (not RNRB) also excludes deduction of charity gift.
Where there is property that passes by survivorship (eg joint property) and or a beneficial interest to an IIP the 10% calculation is carried out separately for each component.
NRB proportioned between components - can elect to merge 10%
Responsibility of personal reps for reporting and paying IHT on estate
Calculate net value of estate including details of CLTs, PETs, quick succession, taper (anything relevant to case study)
Report to HM Revenue and customs by completing IHT400 within 12 months of death
Any tax due should be paid by 6 months from the end of the month of death
To what extent can assets of an estate be accessed before IHT is paid?
Generally unable to access until grant of probate/letters of grant of administration obtained.
Can’t apply until IHT paid
Except current account which can be used to pay tax directly to HMRC under direct payment scheme.
what are the penalties for late reporting and payment of IHT on an estate?
Initial £100 for late delivery of account
Additional £100 if delivered between 6 and 12 months late
Further penalties of up to £3,000 after 12 months
If a PET is made within 7 years prior to a CLT what is the impact on the CLT at the time of transfer and on death.
As long as CLT is within NRB the PET is not taken into account during lifetime.
Subsequently on death if PET fails and uses up some/all NRB the CLT could become chargeable and IHT is due in full unless taper.
If the PET was a CLT it is taken into account when the second CLT occurs.
How is BR dealt with in an IHT calculation?
It’s a relief so added into estate value to calculate total estate for RNRB purposes but removed before tax calculated
What value is used for estate for RNRB qualifying purposes?
After deduction of liabilities but before any reliefs and exemptions.
How to pay IHT of insufficient liquid assets?
Borrow against value of assets
Use own assets
Apply to investment provider to use assets to pay IHT directly to HMRC
Transfer national heritage property to the crown such as artwork
Instalments over 10 years 10% each year of house is lived in
If donee can’t pay the estate is liable
