IHT Flashcards
Assets qualifying for BPR 100% relief
unincorporated trading business or an in interest in trading business
shares in unquoted trading company (including AIM)
Securities in unquoted trading company (including AIM) where transferor has control of company
Assets qualifying for 50% relief
Shares transferred from a controlling holding in a quoted trading company
L+B, P+M owned by transferor and used for business purposes by either :
- A partnership in which trferor was a partner;
- A company of which the trferor had control immediately before the transfer
BPR owship period , restrictions , attributable liabilities, other points
Owship period - 2 years
modified if :
a) replacement business property - combine owship period
b) property passed on death from a spouse/civil partner
c)Two successive transfers of same property, one of which was on death and first transfer of property qualified for relief
RESTRICTIONS
Contract in place for sale denies relief
No BPR on excepted assets
Excepted asset is asset that was neither:
-Used wholly or mainly for the purposes of the business throughout the whole of the two year period prior to the transfer, NOR
-Is required at the time of the transfer for future use by the business.
Examples - large cash balances and L+B held as investments
use in business does not necessarily = use in trade
ATTRIBUTABLE LIABILITIES
Apply BPR to value after deducting attributable liability
OTHER POINTS
Relevant business property can be held anywhere in the world
BPR will no longer apply at the date of the death if…….
a) Donee sold or gifted property before death of transferor (unless proceeds fully invested in replacement qualifying property within 3 years)
b) Property no longer qualifies as business or agricultural property
Additional Nil rate band for a residence
RNRB
qualifying property
Applies for individuals death on after 6 April 17
Residence Nil rate band (RNRB) is £175k, tapered by £1 for every £2 by which an individuals estate exceeds £2m
deduction is capped at the value of qualifying property in the death estate - net of any outstanding mortgages
QUALIFYING PROPERTY
a) has been indivs home at some point, left to one or more of their direct descendants
b) Deceased downsized or ceased to own a home after 8 July 2015 + home would have qualified for the relief if retained and a less valuable property or other assets of equivalent value are included in the death estate and left to direct descendants
Any unused RNRB can be trfered to a surviving spouse/ civil partner (deemed to be 100% if first spouse died before 6 April 17)
RNRB can be offset against assets in death estate, not lifetime gifts
IHT anti avoidance GWROB
Gifts with reservation of benefit (GWROB) - examples:
Gift of a property - living in prop without paying full consideration for occupation
Gift of chattel (i.e. work of art) - retaining possession of chattel without full consid
Gift of income producing asset (i.e. shares) - continuing to recieve income
Gift of asset to a trust which trferor is a beneficiary
TAX TREATMENT IF DONOR DIES USING ASSET
1) treat as a PET/CLT as normal when gift is made
2) if trferor continues to benefit until his death, treat asset as part of his death estate (based on value at the time)
to avoid 2 charges to IHT on same asset only tax 1 or 2 - whichever results in higher IHT payable
TAX TREATMENT IF TRFEROR CEASES TO RETAIN BEENFIT E.G. MOVES OUT OF PROPERTY
3) treated as making further PET at time reservation ceases (based on value of asset at the time)
to avoid 2 charges, only tax 1 or 3 - whichever higher IHT
Exceptions to GWROB
a) asset trfered ‘virtually to the entire exclusion of the trferor’ - allows minor benefit to be disregarded
b) where trferor gives full consideration for any right of occupation or enjoyment
c) circumstances of trferor change in a way that was unforseen at date of og trfer
and the benefit is for reasonable care and maintenance of the trferor as an elderly or infirm relative
Pre owned assets tax charge POAT
if GWROB rules avoided (i.e individual providing cash to their child, used to purchase asset which parent uses)
a pre owned asset charge may apply
An amount will be charged to income tax on the donor for use of the asset equal to:
for L+B - Annual value
For Chattel - value x official rate of interest
Any payments made by trferor for use of asset may be deducted from amount chargeable
trferor may elect out of POAT rules and for GWROB to apply
Deemed domcile for IHT
basis of assessment for IHT depends on indivs domicile
UK domicile - worldwide trfers of wealth are chargeable
Non Uk domicile - UK assets only are chargeable
from 6 April 17 - indiv deemed dom for IHT (non UK assets chargeable) if any of following apply:
a) UK R for 15 of prev 20 years prior to trfer/death including 1 of 4 years ending with year of trfer or death
b) indiv born in UK, domicile of origin UK, and UK res in year of T/D and one of 2 immediately preceeding years - known as formerly domicile resident (FDR),
OR
c) indiv was UK dom at any point within the 3 yrs immediately prior to chargeable trfer or death
New residence test IHT
following from abolishment of remittance for indiv IHT CGT
from 6 April 25 - new res test
only inidvs who have been UK res for at least 10 years will see non UK assets chargeable to IHT
Variations
terms of a will may be varied by a beneficiary so long as it is made:
a) by OG beneficiary of asset under terms of will;
b) within 2 years of death;
c)in writing
d) for no consid in money or moneys worth other than the making of another variation;
AND
e) containing a statement that the variation is to have effect for IHT and/or CGT purposes
IHT and CGT rules apply as if the will had always been written this way (i.e. no gift from OG beneficiary to new beneficiary and new beneficiary acquires asset at probate value)
CGT statement is independent of IHT statement
why?
tax planning - pass assets down to a generation to grandchildren
fairness
Interaction IHT and CGT
gifts on death
lifetime gifts potentially exempt trfers
Lifetime gifts - chargeable lifetime transfers CLTS
gifts on death:
a) IHT may be payable on death estate and lifetime gifts made within prev 7 years
b) CGT not payable on death estate - donees receive assets at probate value (MV at death) - receive free CGT uplift in value
LIfetime gifts - potentially exempt transfers
a) Potentially exempt trfers have no immediate IHT charge
b) CGT position depedns on asset gifted; may be :
-exempt i.e. cash
-chargeable to CGT
if chargeable - gain is calculated using MV for proceeds - gain may be subject to gift relief if business asset
Lifetime gifts - chargeable lifetime transfers (CLTs)
a) a CLT may be subject to immediate IHT charge
AND
b) An immediate CGT charge
to alleviate - gain arising on transfer may be deferred using special form of gift relief
