IHT Flashcards
IHT is?
What are the two main chargeable occasions?
A tax on gifts or transfers of value
Lifetime transfers and death estate
Who is chargeable to IHT?
Individuals and Trustees
What are the exceptions to the IHT charge?
Transfers where there was no gratuitous intent - Selling a painting for £1,000 when it was worth £100,000
Transfers made in the cours eof trade )gifts to staff)
Expenditure on family maintenance (school fees paid for child)
Waivers of renumeration
Waivers of dividends (provided the Waiver is made within 12 months of dividend declared).
What are the Exempt transfers for Lifetime transfers?
Small gifts - up to £250 per donee per tax year. If gifts total more, entire amount is taxable.
Normal expenditure out of income - Leaves donor with sifficient icome to maintain lifestyle
Gifts in consideration of marriage - £5,000 if parent
£2,500 if remote ancestor or one of the parties
£1,000 any other person
IHT is a tax on
Capital, not revenue
Annual exeptions
The first £3,000 of a transfer of value (not covered by another exemption) which is transferred in a tax year is exempt.
Any unused AE is carried forward for one tax year only and can only be used after the current tax years AE
Transfers to UK X and X are exempt
Charities and qualifying political parties and museums and art galleries
What makes a political party qualifying?
At least two members were elected at the house of commons
OR
One member was elected and polled at least 150,000 votes
Chargeable lifetime transfers
They are gifts to a trust and are chargable at the point of the gift. If the donor dies within 7 years there may be further. IHT due on death.
Exemptions should always be used on
CLT’s first
PET’s (Potentially Exempt Transfers)
Any other gifts. Exempt from Lifetime IHT. If donor dies 7 years or more after PET was made, its exempt.
What is the rate of tax on CLT’s?
25% if donor pays IHT
20% of trustees pay IHT
IHT for lifetime transfers on death is due by
the donee
RNRB
The residence nil rate band is available if:
Individual dies on or after 6th April 2017
Owned a home which they lived in (main residence)
Main residence passes to direct decendents children or grand children (not nieces or nephews)
The available RNRB is
The lower of:
£175,000 plus any remaining spouses RNRB
The value of the residence
The RNRB is tapered if
The NET estate exceeds 2million.
Tapered by £1 for every £2 over the threshold
What is the net estate?
Value of all assets less liabilities
Transfers of RNRB and NRB can be claimed up to
Within 2 years of the month of the death of the survivor
Relief for fall in value of lifetime gifts
Fall in value relief -
If an asset is gifted during lifetime and either:
MV at death is lower than original
Before donors death is sold at arms length for less than original value
The donee can make a claim for the death IHT on the lifetime gift is based on the lower value.
When calculating the NRB though, the original value must be used.
Valuation rules - Property
The IHT value of any property is the open market value at the time of the transfer
Quoted shares and securities are valued at the
Lower of:
1/4 up the lower bid of the two closing prices + 1/4 of the difference between this and the higher offer price
OR
Average of highest and lowest marked bargains
Ajustment for ex dividends need to be included within the death estate
As there is no easy way to value unquoted shares and securities
The taxpayer must come to an agreement with HMRC
Units in an authorised business trust are valued at
The managers bid price ( the lower of the two published prices)
Life policies
If they mature on death, the amounts due to be paid are included within the death estate
Overseas property
is converted into sterling at the buy or sell rate that gives the lowest valuation.
The additional admin expenses in relation to the overseas property are also deductible from the estate up to a maximum of 5% of the value of the property. Taxation overseas may give rise to double taxation relief
A property is related if
Owned by:
Donor’s spouse
Charity, political party or national heritage body (where the property was given on an exempt transfer and owned by body within the the last 5 years
Why are there related property rules?
To reduce the IHT saving.
The valuation to be used is the higher of:
- Value using the normal rules
- The related share
Business property relief
When relevant business property is transferred in lifeitme or death there may be BPR available. Deducted before exemptions.
What are the rates of BPR?
Sole business share - 100%
Shares in unquoted company - 100%
Securities that give control in unquoted company - 100%
Securities that give control in quoted company - 50%
Land, P&M owned or used by donor in partnership or company which donor controls 50%
Shares or securities do not qualify if
The company is an investment company or deals with land and buildings.
The donor must have usually owned the property for
2 years
With relplacement property it must be 2 out of the last 5 years
What is an excepted asset?
An asset that has not been wholly used by the business for the past two years or is no longer rewquired for future use in the business
Is BRP available on Excepted assets?
No
BPR is still available if
it was available when the current donor recieved it and the asset is passed over on death
Contracts for sale
BPR is not available if att he date of transfer there is a binding contract for the same of a business, unless the sale is to a company which will continue the business and the consideration is wholly or mainly shares or securities
Agricultueral property relief
If transferred in lifetime or on death APR may be given. Deducted before exemptions
The property must be in the UK or European Economic Area. Rate of relief is 100%.
Given before BPR
APR minimum period of ownership
Owned and used for agricultural purposes by the donor for at least 2 years before the transfer
Owned by donor at least 7 years before the transfer and used for agricultural reasons during that time.
If at least X% of an individuals net estate is X the X% rate of IHT applies
10%
a gift to charity
Reduced rate of 36% applies
The net estate for the purposes of this is
The assets less liabilities, eemptions, reliefs and the available NRB with no deduction for the charitable donation nor any RNRB
Grossing up death gifts
this is done when there is a specific legacy of a UK asset and the residue of the estate is exempt. This can happen when left to a spouse or charity
What is the formula?
Chargeable amount in excess of NRB x 40/60
Quick succession relief
Given if IHT is charged on an estate or asset twice within 5 years
What are the rates of relief for QSR
0-1 = 100%
1-2 = 80%
2-3 = 60%
3-4 = 40%
4-5 = 20%
Calculated as
% of QSR x (Net value of gift / Gross value of gift) x IHT paid on original transfer
You’re deemed domicile for IHT if
Born in UK and:
UK domicile of origin
UK resident in relevant tax year
UK resident in 1 of the last 2 tax years before the relevant tax year
Election for UK domiciled
An individual can elect to be treated as UK domiciled if their spouse is UK domiciiled. This is beneficial if the spouses exemptions are restricted BUT it brings the non dom’s overseas assets into the scope of IHT
DTR for IHT is the
Lower of:
O/s tax paid
UK IHT attributable to the overseas asset
Gifts with reservation of benefit
A gift where a transfer of an asset is made by in individual but some reservation of benefit is retained by that individual
Reservation existing on death
Reservation is to be included int he donors estate at it’s value as of the date of death.. If it was the donors main residence when gifted, it will gain RNRB and lifetime gift will be ignored.
Or can be treated as a lifetime gift and ignored from death estate, but HMRC will choose option with more tax
If the reservation ceases
The transfer can be treated as a gift on the day of cessation with the value being based on this date. Annual exemptions not available.
Define a trust
A legal arrangement under which a person transfers property to other persons who are required to deal with the trust property on behalf of specified persons. It is th elegal separation of ownership and benefit.
What are the two types of trusts?
Interest in posession
Discretionary trust
Interest in posession trusts
The persons having the interest in posession have immediate right to income as it arises
Discretionary trust
Income is paid out at the descretion of the trustees
Property within the trust are known as X. As long as it remains this, it is subject to the X every X. If it leaves the trust an X.
relevant property
principal
10th anniversary of the start of the trust
Exit charge
Lifetime IHT - If a CLT is made between 6th April and 30th September, the IHT is due
30thApril following year. Otherwise it is due 6 months from the end of the month of transfer
IHT on Lfietime gifts is due
IHT on death estate is due
6 months from the end of the month of death
6 months from the end of the month of death or on delivery of account is earlier
IHT may be paid in 10 equal annual instalments on certain assets which are?
Transferred on death
CLT’s where donee pays tax
PET’s where donee has kept property.
Installment options apply to land, shares where donor had control, Unquoted shares if:
Tax due is more than 20% of the total tax on the estate
Tax cannot be paid without undue hardship
Business or interest in a business
Value is less than 20k and the nominal value of the shares is at least 10% of the company
