IHT Flashcards
What governs Inheritance Tax (IHT) in the UK?
Inheritance Tax Act 1984
List the three main occasions when IHT may be charged.
- On death
- On lifetime gifts made to individuals within seven years prior to death
- On lifetime gifts to a company or into a trust
What is charged to IHT upon death?
Value of a person’s estate immediately before their death
What is a Potentially Exempt Transfer (PET)?
A transfer that becomes exempt if the transferor survives for seven years
What happens if the transferor dies within seven years after making a PET?
The transfer becomes chargeable to IHT
When are lifetime gifts to a company or trust chargeable to IHT?
At the time when it is made, unless the trust is for a disabled person
Define a chargeable transfer.
A transfer of value made by an individual that is not an exempt transfer
What constitutes the ‘estate’ in terms of IHT?
All property to which the deceased was beneficially entitled immediately before death, except excluded property
What is considered excluded property under IHTA 1984?
- Life assurance policy written in trust
- Discretionary lump sum from pension fund
What is the probate value?
The value of the assets immediately before death, based on what the property might fetch in the open market
What debts and expenses can be deducted when calculating IHT?
- Debts incurred for money or money’s worth
- Reasonable funeral expenses
What is the spouse or civil partner exemption in IHT?
Property passing to a deceased spouse or civil partner is exempt under IHTA 1984 s 18
What is Business Property Relief (BPR)?
Relief that applies to business property owned for two years before transfer, offering reductions of 100% or 50%
What is the ordinary nil rate band (NRB) amount for IHT?
£325,000 at 0%, 40% on the excess
What happens if 10% of the estate is donated to charity?
The IHT rate is reduced from 40% to 36%
What is the Residence Nil Rate Band (RNRB)?
An additional £175,000 for estates after 6 April 2017, applicable to qualifying residential interests
What is the annual exemption for lifetime gifts?
£3,000 each tax year, can be carried forward for one year
What is the exemption limit for small gifts?
Gifts of £250 or less are exempt
What are the conditions for Normal Expenditure out of Income exemption?
Part of normal expenditure that leaves the transferor with sufficient income to maintain their standard of living
What is the tapering relief for PETs?
Reduces IHT based on the time elapsed since the gift was made, applied if the transferor dies within seven years
What is the impact of death on PET and LCT?
PET becomes chargeable if the transferor dies within seven years, and cumulative totals include any LCTs made in that period
What is the requirement for a valid will?
- Capacity
- Intention
- Formalities for execution
What is required to prove capacity in making a will?
Soundness of mind, memory, and understanding regarding the nature of acts and effects
What does the Wills Act 1837 state about the formalities for execution?
A will must be in writing, signed, and witnessed by two or more witnesses
What is a joint property ownership’s effect upon the death of one owner?
The deceased’s interest passes by survivorship
What happens to life assurance policies upon the policyholder’s death?
The proceeds are paid to the beneficiaries specified in the policy
What is a reversionary interest under IHTA 1984?
A future interest under a settlement that is considered excluded property
Fill in the blank: A _______ is a transfer that becomes chargeable to IHT if the transferor dies within seven years.
Potentially Exempt Transfer (PET)
True or False: Lifetime gifts to a disabled trust are immediately chargeable to IHT.
False
What is the maximum exemption for gifts in consideration of marriage?
- £5,000 by a parent
- £2,500 by a remoter ancestor
- £1,000 by others
What case established the requirement for consciousness of what is going on in witnessing?
Brown v Skirrow 1903
This case emphasizes the importance of the witness’s awareness during the signing of a will.
What does the Wills Act 1837 (Electronic Communications) (Amendment) (Coronavirus) Order 2020 allow regarding witnessing?
Presence by means of videoconference or other visual transmission
This amendment allowed wills to be witnessed remotely from 28 September 2020 until 31 January 2024.
What is the presumption regarding due execution if a will includes an attestation clause?
Presumption of due execution is made
This means that if the will is properly attested, it is assumed to have been executed correctly.
What are the requirements for a witness to a will?
Must understand the significance of being a witness
This ensures that the witnesses are aware of their role in the process.
What happens if a witness to a will is also a beneficiary?
The will remains valid, but the gift to the witness fails
This is stated in section 15 of the Wills Act.
What is one way a will can be revoked?
By a later will or codicil
Section 20 of the Wills Act states that a will may be revoked in whole or in part by a later will or codicil.
What happens to a will if the testator marries after executing it?
The will is automatically revoked
This is outlined in section 18 of the Wills Act, except in certain circumstances.
What occurs if a civil partnership is converted to a marriage regarding an existing will?
The conversion will not revoke an existing will
This is a new provision in section 18 WA.
What is the effect of divorce or dissolution of a civil partnership on a will?
Will remains valid, but certain provisions take effect as if the former spouse had died
This is due to amendments made by the Law Reform (Succession) Act 1995.
How can a will be revoked by destruction?
Physical destruction with intention to revoke
This is specified in section 20 of the Wills Act.
What must alterations to a will be executed like?
Like a will
This ensures that any changes are legally valid.
What is the role of executors in a will?
People dealing with the estate appointed by the will
Executors are responsible for administering the estate according to the will.
What happens to a specific legacy if the testator no longer owns that property at death?
The specific legacy will fail
This concept is known as ademption.
What is a presumption regarding the testator’s intent with respect to specific assets?
Presumption that the testator meant to dispose of the particular asset they owned at the date of the will
This helps clarify the testator’s intentions.
What happens if a beneficiary dies before the testator?
The gift fails or lapses
If the legacy lapses, the property falls into residue.
According to the Law of Property Act s 184, how is the order of deaths presumed if two people die at the same time?
The elder died first
This presumption helps resolve issues of inheritance.
What occurs to gifts made to joint tenants if one dies before the testator?
Will not lapse unless all donees die before the testator
This means that the surviving joint tenant retains their share.
What does Wills Act 1837, s 33 state about gifts to children and remoter issue?
Gifts left for children who die will pass to their issue surviving the testator
This allows for continuity in inheritance.
Fill in the blank: Any gift for a former spouse or civil partner shall pass as if the former ______ had died.
spouse/civil partner
This rule ensures that former partners do not benefit from a will after separation.
What happens to property undisposed of by a will?
It passes under intestacy rules
This means it will be distributed according to statutory provisions.
