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Wills and Estates > IHT Charge > Flashcards

IHT Charge Flashcards

1
Q

What are the IHT rates?

A

Nil rate band 0%
Lifetime rate 20%
Death rate 40%

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2
Q

What are the IHT trigger events?

A

Potentially exempt transactions
Lifetime chargeable transfers
Death

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3
Q

When is a PET chargeable?

A

IF the donor dies within 7 years

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4
Q

What is a PET?

A

Lifetime transfer to another individual

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5
Q

What is an LCT?

A

Transfer of value made by a person into a trust

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6
Q

When is an LCT chargeable?

A

When its made

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7
Q

What is a chargeable transfer?

A

transfer of value made by individual that’s not ‘exempt transfer’

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8
Q

What does the value in a transfer of value depend on?

A
  • Lifetime: reference to loss in value to the donor
  • Death: Reference to market value of items in estate on DOD
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9
Q

What is a transfer of value?

A

disposition’ resulting in immediate decrease in value of estate

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10
Q

What is the nil rate band?

A

Basic - 325,000
Residence - 175,000
transferable between spouses

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11
Q

What happens if a person dies within 7 years of an LCT?

A

Reassessed to death rate of IHT

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12
Q

When should IHT be calculated on lifetime transfers?

A
  1. Failed PET
  2. LCT when made
  3. LCT reassessed on death
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13
Q

What is the formula for lifetime transfer?

A

A. Calculate cumulative total
B. Identify value transferred
C. Apply exemptions and relief
D. Apply NRB and calculate tax
E. Apply taper relief (after death)
F. Give credit for tax paid in lifetime (after death)

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14
Q

What is the formula for death transfer?

A
  1. Calculate cumulative total
  2. Identify assets included in taxable estate
  3. Value taxable estate
  4. Deduct debts/expenses
  5. Apply exemptions and relief
  6. Apply RNRB
  7. Apply basic NRB and calculate tax
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15
Q

What is the TNRB equal to?

A

% of NRB on date survivor dies.

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16
Q

What are the TNRB implications if you survive more than one spouse?

A

can claim all of them, cap 100% full NRB.

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17
Q

Can TNRB be claimed by a survivor on a chargeable lifetime transfer?

A

No

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18
Q

Can TNRB from a previous marriage be passed to a subsequent spouse?

A

Yes (cap 100%)

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19
Q

When should a claim for TNRB be made?

A

By personal representatives within 2 years of end of month of death
or within 3 months of PRs acting

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20
Q

What are the requirements for RNRB?

A
  • Died on/after 6 April 2017
  • Estate included a ‘qualifying residential interest’
  • QRI was ‘closely inherited’ by a ‘direct descendant’
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21
Q

What is the amount of RNRB?

A

175000

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22
Q

What is tapered withdrawal of RNRB?

A

net value over 2 million. (£1 for every £2 above 2 million)

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23
Q

When is there no RNRB available?

A

Over 2.35 million (or 2.7 if full TRNRB)

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24
Q

What is residential property interest for QRI?

A

dwellinghouse which dec’d occupied as residence at some point of ownership. (includes intended to use as residence in due course)

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25
Q

what does closely inherited mean?

A
  • will
  • intestacy
  • survivorship
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26
Q

What does not come under the definition of closely inherited?

A

Contingent interest

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27
Q

what does direct descendant mean?

A
  • children, grandchildren, great-grandchildren, other lineal descendants
    o Includes adopted and step (if married to parent)
  • Spouse or civil partner of anyone included in above
  • Widow, widower or surviving civil partner of anyone above who has predeceased the deceased, provided the survivor does not re-marry or enter a new civil partnership before the deceased dies
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28
Q

what are the requirements for downsizing?

A
  • Dec’d gave away their QRI or downsized to a less valuable QRI on or after July 2015 (i.e. lost the benefit of the full RNRB)
  • the former home would have been a QRI if it had been retained
  • a direct descendant inherits the replacement QRI and/or other assets
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29
Q

when is downsizing not relevant?

A
  • no loss of the RNRB because the value of any new QRI in the estate is the same/more than the maximum available RNRB, or,
  • the RNRB is not available, because the new QRI or assets are not left to a direct descendant
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30
Q

How do you calculate the cumulative total?

A

Add value of all chargeable transfers made 7 years before DOD

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31
Q

How is the cumulative total calculated for lifetime transfers?

A

Adding value of chargeable transfers made 7 years prior to transfer

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32
Q

How is the value of the atrnsfer assessed for lifetimen transfers?

A

by reference to loss in value to donor at date of transfer

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33
Q

The chargeable value for a lifetime transfer is calculated after what?

A

deduction of exemptions or relief

34
Q

What is the general rule to identify assets included in taxable estate?

A

all property that dec’d was beneficially entitled to at DOD

35
Q

What assets are included in the taxable estate even though, in some cases, it may not be
immediately obvious?

A

All jointly owned property
Property subject to a reservation
Donationes mortis causa (DMC)
Statutory nominations
Some interests in possession trusts

36
Q

What property is excluded from IHT?

A

Excluded property’ - remainderman interest
Insurance policies written in trust for a third party
Discretionary pension scheme payments

37
Q

what is the general rule for valueing the taxeable estate?

A

Market value at DOD

38
Q

What are the exceptions to valueing the taxeable estate?

A
  • Related property: assets owned by spouses worth more when valued together, proportionate share is valued.
  • Joint property: Co owned land = value reduced (by 10-15%) to reflect difficulty of selling a share. Not applied where married.
39
Q

What can be deducted from the taxeable estate?

A
  • Dec’d debts/liabilities due at DOD. Money owed.
  • Post death debts/expenses – funeral and tombstone.
40
Q

What are the taxeable estate exemptions and relief?

A
  • Spouse exemption
  • Charity exemption
  • Business property relief
  • Agricultural property relief
41
Q

How do you apply RNRB?

A

a. Establish RNRB available. includes transferred RNRB
b. Apply a rate of 0% to the value of the taxable estate up to the total RNRB amount.

42
Q

Howw do you apply basic NRB and calculate tax?

A

a. Establish NRB and any transferred NRB
b. Reduce total NRB by cumulative total (from Step 1)
c. Apply a rate of 0% to the value of the remaining taxable estate up to the total NRB amount
d. Apply the death rate of 40% = IHT due.

43
Q

Who generally pays IHT for LCTs?

A

Trustees

44
Q

How do you calculate IHT for LCTs when grossing up?

A

what the transfer value would be to leave the sum post-tax

45
Q

Who is usually libale to pay IHT on lifetime transfers that are taxed following death?

A

Donee

46
Q

What happens if donees dont pay IHT by 12 months after the death?

A

PRs become liable

47
Q

How is IHT on the death estate usually paid?

A

by PRs as part of admin expense, from residue

48
Q

When will IHT not be paid from residue?

A

Contrary intention

49
Q

What are the IHT exemptions/reliefs?

A
  • Spouse exemption (s 18)
  • Charity exemption (s 23)
  • Family maintenance exemption (s 11)
  • AE (s 19)
  • Small gifts allowance (s 20)
  • Normal expenditure from income (s 21)
  • Marriage exemption (s 22)
  • BPR (s 104)
  • APR (s 116)
  • Taper Relief (s 7)
50
Q

What exemptions are Available for lifetime transfers only?

A

Annual exemption
Family maintenance exemption
Small gifts exemption
Marriage exemption
Normal expenditure out of income exemption
Taper relief

51
Q

What exemptions are Available on death only?

A

Woodlands relief
Quick succession relief

52
Q

What exemptions are Available for both lifetime transfers and death estate?

A

Spouse exemption
Political party exemption
Charity exemption
Exemptions for gifts for national purposes or
to heritage maintenance funds
Business property relief
Exemption for gifts to Employee Benefit Trusts
Agricultural property relief
Exemption for gifts to housing associations

53
Q

What is the annual exemption?

A

3000

54
Q

Who can receive family maintenance payments relief?

A
  • spouse
  • minor child for education or training
  • adult child in full time education or training
  • dependent relative
55
Q

What is the Small gifts exemption?

A

Up to £250 per recipient

56
Q

What is the marriage exemption?

A
  • £5,000 if made by a parent of one of the parties
  • £2,500 if made by one party of the marriage to the other
  • £2,500 if made by their remoter ancestor (great/grandparent)
  • £1,000 in any other case
57
Q

What are the conditions for Normal expenditure out of income exemption?

A
  • from the donor’s income (not capital)
  • as part of a normal/regular pattern of giving, and
  • does not affect the donor’s standard of living.
58
Q

what are the taper relief rates?

A

0-3 years pre death None
3-4 years pre death 20%
4-5 years pre death 40%
5-6 years pre death 60%
6-7 years pre death 80%

59
Q

What constitutes a charity for the exemption to apply?

A

Subject to ‘jurisdiction of a UK court/other EU member state’

60
Q

What are the rules for political party exemption?

A
  • The party had at least two MPs elected
  • At least one MP elected + at least 150,000 votes to candidates
61
Q

What are qualifying business assets for BPR?

A
  • Unquoted shares: all private company shares (ltd
  • Quoted shares: listed on a recognised stock exchange (PLC) but only if taxpayer controls the company (50%+)
  • Business or interest in a business: sole trader/partnership interest
  • Assets owned by taxpayer but used for business: Land/buildings/ machinery used for business purposes by a company they controlled/partnership
62
Q

When are investment assets not BPR?

A

If business:
* dealing in securities, stocks or shares, land or buildings
* making or holding investment (rental property included)

63
Q

What are the rates of BPR?

A

Unquoted shares 100%
Quoted shares 50%
Business or interest in a business 100%
Assets used for business purposes 50%

64
Q

What is the period of qualiyfing period of ownership for BPR?

A

At least 2 years

65
Q

What are the exceptions for the qualifying period for BPR/APR?

A
  • qualifying assets sold + replaced with new qualifying assets within a certain period of time = treated as continuous.
  • inherits business assets following death, deemed to acquire the assets on DOD
  • inherits business assets following death of spouse = owned the property when originally acquired irrespective of marriage length.
66
Q

What are the rules for lifetime transfers of BPR?

A
  • is owned by the transferee; and
  • qualifies for BPR when the transferor dies (or transferee if earlier)
  • no minimum ownership requirement of 2 years for the transferee.
67
Q

What are qualifying assets for APR?

A
  • Agricultural land and buildings: used for purposes connected with agricultural activity
  • Farmhouses and cottages: may qualify if ‘character appropriate’ to the associated agricultural land and have been occupied for the purposes of agriculture
68
Q

What is the period of qualiyfing 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
69
Q

What is the rate of APR?

A

Transferor was owner/occupier = 100%

70
Q

Whic of APR/BPR takes precedence?

A

APR

71
Q

What is the requirement for woodland relief?

A

Must have owned woodland for at least 5 years before death.
If inherited – no qualifying period of ownership.
Value of the trees

72
Q

What are the requirements for quick succession relief?

A
  • death estate includes assets received by gift or inheritance,
  • in the 5 years before their death, and
  • the assets were subject to IHT charge when transferred to dec’d
73
Q

When can an executor not renounce?

A

If they have intermeddled

74
Q

What is intermeddling?

A

taken steps indicating they have ‘accepted
their appointment’ and are fulfilling the duty to administer the estate

75
Q

What is required for renouncing as executor?

A

executor must sign a form of renunciation
Those applying must submit the form to probate registry as evidence

76
Q

What is required for reserving power to an executor?

A

must give notice of their intention to apply to the executor to whom power is reserved

77
Q

How can an executor appoint an attorney?

A
  • After executor has obtained a grant - s 25 TA 1925 maximum of 12 months, can be renewed. Other executors notified.
  • Before a grant has been obtained – other executors apply, attorney makes parallel application for letters of administration (with will)
78
Q

What happens is all executors can’t/won’t act?

A

Grant of Probate cannot be issued.
letters of administration (with will), administrator appointed under NCPR 20.

79
Q

Can an administrator reserve power?

A

No

80
Q

Can an administrator renounce if they have intermeddled?

A

yes

81
Q

What can a court direction (using the citation process) be used to do?

A
  • Require a person to take out a grant
  • Remove their right to apply
  • Authorise another person to take on the administration

Wills and Estates (13 decks)

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