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SQE 1 > IHT > Flashcards

IHT Flashcards

1
Q

Steps for calculating

A
  1. Identify transfer of value
  2. Find the value of the transferred
  3. Apply any relevant exemptions and reliefs
  4. Calculate tax at appropriate rate
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2
Q

3 circumstances it arises

A
  1. On death estate
  2. PETs-lifetime gifts to individuals
  3. LCT-transfers to trusts/companies
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3
Q

What is the ‘estate’ on death for IHT purposes

A

All prop deceased beneficially entitled to immediately before death, including property :
i) Passing under will/intestacy
ii) which deceased beneficially entitled to
iii)included because of statutory provisions

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4
Q

What is included in the estate for IHT purposes because of statutory provisions

A

i. Certain trust property: Where entitled to income, whole trust fund is taxed as if part of Bs estate (B has ‘qualifying interest in possession’)
ii. Property given away during lifetime but subject to a reservation at time of death
(Ie. Where still retain possession and enjoyment of prop/not entirely excluded from enjoying the property)

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5
Q

What is NOT classed as ‘estate’ on death

A

Where not beneficially interested in prop immediately before death :
1. Life insurance on trust for named beneficiary
2. Lump sum from pension to deceased’s fam
Excluded property: A remainder interest in a trust where the life tenant is still alive (whoevers getting income from the trust pays the tax)

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6
Q

What is a PET

A

Any gift made by individual to another individual or into a disabled trust
EXCEPT
◊ for maintenance, education or training of their kids under 18 or over 18 if in full time ed/training
◊ For maintenance of dependent relative

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7
Q

Is a PET chargeable to IHT?

A

Not chargeable when made, if transferor dies within 7y,becomes chargeable and transferee will be liable

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8
Q

What is a LCT

A

transfer to company/trust (unless trust for disabled person)

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9
Q

Is a LCT chargeable to IHT

A

Chargeable when made
On death, will need to recalculate:
-If more than 7y from death, NOT RECHARGEABLE
-If in 7y pre death recalculate and , trustees liable for extra

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10
Q

What is the ‘value transferred’ for the death estate?

A

Open market value of assets in death estate LESS debts and reasonable funeral expenses

◊ land held as JT NOT with spouse reduced by:
10% for commercial prop
15% residential prop

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11
Q

How are shares valued for the ‘death estate’?

A

Quoted shares-value taken from Stock Exchange Daily Official List for date of death/nearest trading day (quotes 2 prices)
To value, take 1/4 of difference between lower and higher price and add to lower price

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12
Q

What is the ‘value of the transferred’ for a PET?

A

Amount of reduction of transferors estate
Estate=aggregate of all prop they’re beneficially entitled
Related prop rules-prop transferred between husband/wife treated as part of same group =deemed to own half of joint value

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13
Q

What exemptions and reliefs are available for both death and lifetime transfers?

A
  1. Spouse/civil partner exemption : Transfer 100% exempt if to spouse/civil partner
  2. Charity exemption of 100%
  3. Business property relief
  4. Agricultural relief
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14
Q

when does business property relief apply?

A

Where business is:
‘trading’-selling product/service (as opposed to dealing with investments/land)
For quoted shares (on stock exchange), must have voting control
Transferor must have owned assets for 2y OR assets must be replacement for relevant business prop where combined period of ownership is 2y (if inherited from spouse, deemed to have owned from date it was originally acquired by deceased)

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15
Q

What is the effect of business property relief

A

100% for relevant business property – Business or interest in business
– Co shares not listed on recognised stock exchange

50% for any other relevant business property
– co shares listed on recognised stock exchange if transferor had voting control of co immediately prior transfer
– Land, buildings, machinery, plant owned by transferor but used for business purposes of partnership (which member of) or co (which had voting control 50% (inc. spouse))

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16
Q

Effect of agricultural relief?

A

◊ 100% where:
transfer had the right to vacant possession immediately before transfer
OR prop was subject to a letting commencing on/after 1 Sept 1995

50% in other cases

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17
Q

Conditions for Agricultural relief to apply

A

◊ Prop was occupied by transferor for purposes of agri for 2y prior to transfer
◊ OR prop was owned by transferor for 7y prior and was occupied by someone throughout that period for the purposes of agriculture

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18
Q

What extra reliefs and exemptions are only available for lifetime transfers (PETs/LCTs)

A
  1. Annual exemption
  2. Small gifts
  3. Normal expenditure out of income (ie. To kid at uni)
  4. Gifts on marriage
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19
Q

What is the effect of the annual exemption?

A

First £3k transferred in each tax year exempt
Unused can be carried forward 1y (current year must be used first)

20
Q

What is the effect of small gifts exemption

A

Of less than £250 to one person exempt

21
Q

What is the effect of Normal expenditure out of income (ie. To kid at uni) relief

A

Exempt if:
Made as part of normal expenditure
Out of transferers income
After, left with sufficient income to maintain usual standard of living

Exempt up to
£5k by parent
£2.5k by remoter ancestor
£1k in any other case

Value remaining after will be chargeable if transferor dies within 7y

22
Q

2 steps for calculating tax at the appropriate rate (step 4)

A
  1. Cumulate NRB
  2. Apply rate of tax
  3. For PET/LCT Apply relief to tax: taper relief
23
Q

What is cumulation

A

If another chargeable transfer made within 7y before current one, this reduced the nil rate band available to that current transfer (must be cumulated with current one)
=lifetime transfers use up NRB first, reducing amount available to estate

24
Q

What is a PETs cumulative total made up of?

A

i) LCT made in 7y before this PET
ii)Other PET made in 7y before this PET which have become chargeable as a result of death

25
Q

What is a LCTs cumulative total made up of?

A

i) Other LCTs made in 7y before this LCT
ii) Any PETS made in 7y before this LCT which have become chargeable as a result of death

26
Q

What are the rates of IHT

A

0% -Nil rate band/ Residence nil rate band
40%-rest
36%- for charity

27
Q

What is the NRB

A

First £325,000 at 0%

28
Q

What is the RNRB?

A

£175,00 at 0%

29
Q

When does the RNRB apply?

A
  1. Dies owning a qualifying residential interest (interest in dwelling house which they’ve lived in and forms part of estate)
  2. Which is closely inherited
    issue inc. foster, adoptive, step, guardian
    Current spouse of lineal descendent
    Widow/er of lineal descendent unless remarried before deceased’s death
30
Q

When is the RNRB adjusted

A

Estate more than £2mill, RNRB reduced by £1 for ever £2 over £2mill

31
Q

How to calculate the adjusted RNRB

A

£175,000
LESS
(value of estate LESS £2mill) DIVIDED BY 2

32
Q

What is the downsizing allowance

A

Where deceased downsized/sold to move to care home, can still claim RNRB on prop if it would have qualified, replacement prop of similar value left to lineal descendants

33
Q

Rates of IHT on LCT when made

A

0% on first £325k (nil rate band)
20% on balance of chargeable transfer
LCTS when recalculated on death-subtract IHT already paid (no refund if more)

34
Q

What is taper relief for PETs/LCTs?

A

Tax on death charge reduced in following %…
(a) transfers within 3-4y pre death: 80%
(b) transfers within 4-5y pre death: 60%
(c) transfers within 5-6y pre death: 40%
(d) transfers within 6-7y pre death: 20%

35
Q

What is the estate rate

A

average tax applicable to each item of property in the estate
Tax divided between assets proportionately according to value
Estate rate-average tax on estate as %

36
Q

How to calculate the estate rate

A

Total tax bill DIVIDED BY total chargeable estate
TIMES 100

37
Q

Who is primarily liable for IHT on PETS?

A

Transferee

38
Q

When to PRs become liable for IHT on PETS?

A

PRs become liable if tax remains unpaid 12mo after end of mo of death

39
Q

Who is primarily liable for IHT on LCTs

A

Transferor
BUT HMRC can also claim from trustees

40
Q

Who has the burden of IHT on estate

A

Can be chosen by transferor:
On transferees
Out of residue of estate
If will silent, at testamentary expense

41
Q

When is IHT due

A

6mo after end of month of death

42
Q

What happens if IHT is not paid in time?

A

Interest runs on outstanding amount

43
Q

What IHT can be paid in instalments

A

Land
Business/ business interest
Shares (quoted or unquoted) which gave control of co immediately before death
Unquoted shares which do not give control if:
◊ Holding is at least 10% nominal value of Co shares AND worth more than £20k
◊ OR HMRC satisfied tax cant be paid in 1 sum without undue hardship
◊ OR IHT attributable to shares and any other instalment option property in the estate amounts to at least 20% of the IHT payable on the estate.

44
Q

Time limit for paying LCTs at time of transfer

A

Made after 5 April and before 1 Oct, due 10 April following year
Not between these dates- due 6mo after end of no LCT made

45
Q

Time limit for paying LCTs following death within 7y

A

Due 6mo after end of mo of death
Instalment option available

46
Q

What do you check if you can deduct from a PET

A

ANNUAL EXEMPTION!!!!

SQE 1 (46 decks)

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