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Wills And Estates > IHT > Flashcards

IHT Flashcards

1
Q

When will a potential exempt transfer fail?

A

When the transferor does not survive for seven years, the transfers are chargeable.

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2
Q

What are lifetime chargeable transfers?

A

Lifetime transfers of value which are immediately chargeable to IHT at the lifetime rate (20%). These are reassessed if the transferor dies within seven years.

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3
Q

How much is the nil rate band?

A

£325,000

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4
Q

Who can inherit the transferable nil rate band?

A

Spouse or civil partner can inherit the unused proportion.

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5
Q

What is the resident nil rate band?

A

£175,000 if the family home is left to direct descendants.

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6
Q

Are the taxable death rate and the succession estate the same?

A

No

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7
Q

What is the rate of tax on the death estate?

A

40%

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8
Q

What is the cumulation total?

A

Total of failed PETs and LCTs (Total chargeable value of all the chargeable transfers made in the previous 7 years).

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9
Q

What are the 7 steps to calculate IHT on the death estate?

A
  1. Calculate cumulative total
  2. Identify assets included in the taxable estate
  3. Value the taxable estate
  4. Deduct debts/expenses
  5. Apply exemptions & reliefs
  6. Apply RNRB
  7. Apply basic NRB and calculate tax
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10
Q

What is the transferable nil rate band capped out?

A

If someone outlives multiple spouses, they can claim both unused nil rate bands, but the total is capped at 100% (£325,000 currently).

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11
Q

When does RNRB not apply?

A

There is no RNRB available at all for net estates worth £2,350,000 or more.

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12
Q

Does the RNRB apply to rental investment properties?

A

No

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13
Q

Who are direct descendants for the purpose of RNRB?

A

The deceased’s children, grandchildren, great-grandchildren, and other lineal descendants, including spouses or civil partners of the above, adopted children, step-children (if their parent was married to the deceased), foster children, and children for whom the deceased was a guardian or special guardian.

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14
Q

Who are not considered direct descendants for the purpose of RNRB?

A

The deceased’s siblings, parents, nieces, and nephews are not direct descendants.

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15
Q

Can any unused RNRB be transferred to a surviving spouse?

A

Yes - if they outlive multiple spouses, limited to 100% (£175,000 currently).

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16
Q

When is downsizing relevant?

A

Only relevant if there is no QRI in the estate when the deceased died (but there was historically), or the value of the new QRI following a downsizing move is less than the current maximum RNRB.

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17
Q

What is the maximum possible combined NRB?

A

1 Million (2 x NRB and 2 x RNRB = £325,000 + £325,000 + £175,000 + £175,000).

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18
Q

What assets are included in the death estate despite possibly not being included in the succession estate?

A

All jointly owned property, property subject to a reservation, donations mortis causa, statutory nominations, and some interests in possession.

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19
Q

What is the amount that will be taxed if the deceased was a tenant in common?

A

Their share minus 10%, unless the property is with a spouse/civil partner.

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20
Q

Is the deceased’s share included in the taxable estate if property owned as joint tenants?

A

Yes

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21
Q

Is the deceased’s share in a joint bank account included in the taxable estate?

A

Yes

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22
Q

What is property subject to a reservation (GROB)?

A

If a person gives an asset away during their lifetime but reserves a benefit in that asset, the value of the asset at date of death will be included in the donor’s IHT estate when they die.

E.g. parents give their holiday home to children but continue to use it whenever they want.

23
Q

What is a donationes mortis causa?

A

A lifetime gift which is made conditional on death.

24
Q

What assets are excluded from the taxable estate?

A

Insurance policies written in trust for a third party and discretionary pension scheme payments.

25
Q

Are pension lump sums payable by right to the estate of the deceased included in the taxable estate?

A

Yes

26
Q

What debts are deducted from the death estate?

A

The deceased’s debts/liabilities due at the date of death and reasonable funeral expenses and the cost of a tombstone.

27
Q

What exemptions or reliefs are available to IHT?

A

Spouse exemption, charity exemption, business property relief (‘BPR’), and agricultural property relief (‘APR’).

28
Q

What is the spouse exemption?

A

Gifts between spouses during life and following death are completely exempt.

29
Q

If a spouse is named as remainder beneficiary in a life interest trust, is it exempt for IHT purposes?

A

No - need to be named as the life tenant for spouse exemption to apply.

30
Q

What is the charity exemption?

A

All transfers to registered charities during life and following death are exempt irrespective of the amount given provided the gift is used exclusively for the purposes of the charity.

31
Q

What is the effect of leaving at least 10% of the estate to charity?

A

Reduced rate of IHT (36% instead of 40%).

32
Q

What assets qualify for business property relief?

A

Unquoted shares - 100% IHT relief; quoted shares - 50% IHT relief; business or interest in a business - 100% IHT relief; assets owned by taxpayer but used for business purposes - 50% relief.

33
Q

When will a business (or interest in a business), or shares in a company, not be considered business property?

A

If the business concerned consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investment (rental property is considered an investment asset).

34
Q

What is the qualifying period of ownership for BPR?

A

Must have owned the business assets continuously for at least 2 years immediately prior to the relevant transfer.

35
Q

If a person inherits business or agricultural assets following the death of their spouse, when are they deemed to have owned the property?

A

From the time it was originally acquired by their deceased spouse irrespective of how long they had been married.

36
Q

What properties qualify for APR?

A

Agricultural land and buildings used for purposes connected with agricultural activity, farmhouses, and cottages occupied for the purpose of agriculture.

37
Q

What is the qualifying period of ownership for APR?

A

Occupied for agricultural purposes by the transferor throughout the two years immediately before the transfer, or owned by the transferor and occupied by them or another for agricultural purposes throughout seven years immediately before the transfer.

38
Q

If a person inherits qualifying assets for APR or BPR following someone’s death, when are they deemed to acquire the asset?

A

The date of death.

39
Q

What are the rates of APR?

A

100% relief is available if the transferor was the owner-occupier or the property was let on a tenancy beginning on or after 1st September 1995. 50% relief applies less frequently.

40
Q

Is APR or BPR given priority if both reliefs apply?

A

APR

41
Q

When does quick succession relief apply?

A

QSR applies where a person dies and their death estate includes assets received by way of gift or inheritance in the 5 years before their death, and those assets were subject to an IHT charge when transferred to the deceased.

42
Q

When will woodlands relief apply?

A

Gifts of woodland following death may qualify for woodlands relief if the deceased had purchased the woodland and owned it for at least 5 years before dying.

43
Q

When is the deadline for submitting an account?

A

12 months from the end of the month in which the death occurred.

44
Q

When is the deadline for paying IHT?

A

6 months from the end of the month in which death occurred, after which interest becomes payable on the unpaid tax.

45
Q

Can IHT be paid in installments?

A

Yes - in respect of certain assets, it may be paid by 10 equal annual instalments.

46
Q

What is the IHT 400?

A

Unless the estate is excepted, the PRs report to HMRC about the estate assets and liabilities by completing form IHT 400 (IHT account).

47
Q

When is an IHT 400 form not needed?

A

For low value excepted estates and exempt excepted estates.

48
Q

What is a low value excepted estate?

A

No IHT payable because the gross value of the estate is below the NRB.

49
Q

What is an exempt excepted estate?

A

The gross value of the estate is no more than £3 million, but no IHT is payable because after debts are deducted and spouse and/or charity exemption are applied, the net value of the estate is below the NRB.

50
Q

What exemptions apply to exempt excepted estate?

A

Spouse and charity only.

51
Q

What is the C4 used to inform HMRC about?

A

Additional assets/liabilities discovered after the IHT 400 was submitted, corrections to the value of assets/liabilities originally included in the IHT 400, changes to exemptions/reliefs applied, and a variation of the original beneficiary entitlements which affect the IHT liability.

52
Q

What form needs to be completed if a direct payment scheme is being used to pay HMRC?

A

IHT 423

53
Q

Can borrowing be used to pay IHT?

A

Yes - either from the beneficiary or the bank (commercial rates of interest will apply).

Wills And Estates (8 decks)

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