IHT Flashcards
IHT Rate
40% on transfers of an estate that exceed the Nil Rate Band (NRB) of £325,000 and any available reliefs.
Payment Deadline
IHT is due 6 months from the end of the month in which the decedent died.
Who Pays
Tax is payable by the Personal Representatives (PRs) of the estate.
Deductibles
Funeral expenses and debts are deducted from the net value of the estate.
Nil Rate Band (NRB)
£325,000. Can be uplifted by the deceased’s spouse’s unused NRB.
Residential NRB
£175,000 for the deceased’s private residence if proceeds or residence are left to lineal descendants.
Residential NRB
Estates with a net value over £2m see the Residential NRB tapered away at a rate of £1 for every £2 over the limit.
Residential NRB
Can be uplifted by the deceased’s spouse’s unused Residential NRB.
Residential NRB
Downsizing addition available.
Gift with Reservation of Benefit
If an individual gives a gift but continues to benefit from it (e.g., living rent-free in a house given to a child), the gift is treated as part of the deceased’s estate for IHT purposes, unless market value is paid for the continued use.
Lifetime Gifts
Taxable if the transferor dies within 7 years of making the gift.
Non-Domiciled Individuals
IHT only applicable to assets located in the UK.
Exempt Transfers
- Gifts to spouse or civil partner (if the spouse is not domiciled in the UK, only the first £325,000 is exempt).
Exempt Transfers
- Gifts to charities (if gifts to charities exceed 10% of the estate, IHT rate becomes 36%).
Exempt Transfers
- Gifts < £250 (Lifetime Gifts only).
Exempt Transfers
- Wedding gifts (up to £5,000 as a parent) (Lifetime Gifts only).
Exempt Transfers
- Normal expenditures out of income (e.g., Christmas presents) (Lifetime Gifts only).
Annual Exemption
£3,000 can be offset against gifts each year. Can be carried forward only once to make £6,000.
Chargeable Lifetime Transfers (CLTs)
Tax rate is 20% if paid by the trustees or 25% if paid by the donor (immediately chargeable).
Taper Relief
Reduces IHT owed if there are more than 3 years between the date of the Potentially Exempt Transfer (PET) and the donor’s death.
Taper Relief
Reduces the tax owed by 20% for each year prior to the 3-year period before death.
Business Relief
Reduces the value of business property given as a lifetime gift to a trust or at death.
Business Relief
Applied before the annual exemption.
Business Relief
100% Relief:Transfers of sole trade business or partnership interests, or shares in an unlisted trading company.
Business Relief
50% Relief:Transfers of shares in a quoted trading company if the donor holds more than 50% of the voting shares, or transfers of land, buildings, or machinery used by a partnership or company the donor controls.
Business Relief
Relief only available if the business is trading and the donor owned the property for at least 2 years.
Agricultural Relief
100% Relief: Applies to agricultural land or buildings used for agriculture in the UK, Channel Islands, Isle of Man, or EEA states.
Agricultural Relief
Relief is available if the donor has owned the property for at least 2 years and used it in their business.
Agricultural Relief
Also available if the donor leased the property to a trust for agricultural use by tenants, and the donor owned the property for at least 7 years.
Agricultural Relief
A farmer running a business can qualify for both business and agricultural relief.
Quick Succession Relief
Applies when someone dies within 5 years of inheriting an asset on which IHT was previously paid.
Quick Succession Relief
Decreases by 20% for each year between the donor’s and the recipient’s death.
