IHT I Flashcards
What is the Lifetime Rate for IHT?
20%
What is the Death Rate for IHT?
40%
What are Potentially Exempt Transfers (PET)?
Lifetime transfers that may become chargeable if the transferor dies within seven years. Not chargeable at the time the transfer is made.
What defines Lifetime Chargeable Transfers (LCT)?
Lifetime transfers of value of trust made on or after 22 March 2006 are immediately chargeable to IHT
LCTs are taxed at the rate of 20%.
What happens if a transferor dies within 7 yrs of making an LCT?
The LCT wil be reassessed to tax at the death rate (40%)
What is deemed to happen upon death regarding assets and how are they valued?
A deemed transfer of all the assets owned by the individual - the taxable estate is valued at market price immediately before death.
What are Transfers of Value?
Dispositions resulting in an immediate decrease in an individual’s estate
What is the amount of chargeable transfers an individual can make under the Nil Rate Band?
£325,000
What is the Residence Nil Rate Band?
£175,000 for individuals who die on or after 6 April 2017 if they leave their primary residence to their direct descendant.
Can a spouse inherit an individual’s Nil Rate Band?
Yes
What is the Cumulative Total in relation to Nil Rate Bands?
The Cumulative Total is the Total Chargeable Value of All the Chargeable Transfers Made in the Previous 7 Years.
How is the Available NRB for Transfer calculated?
Available NRB for Transfer = Full NRB – Cumulative Total.
What can PRs of a surviving spouse claim regarding the NRB?
PRs can claim an increase in the survivor’s NRB equal to the unused percentage of the first spouse’s NRB.
When is the TNRB available?
The TNRB is only available after the surviving spouse dies and does not apply to LCTs made by the survivor.
Can individuals claim TNRB for multiple spouses?
Yes, individuals who have survived more than one spouse can claim the TNRB in respect of all of them, subject to a cap of 100% of a full NRB being transferred.
What must PRs do to claim TNRB?
PRs must make a claim for the TNRB in the IHT return within two years of the end of the month of death or within three months of the PRs first acting.
What happens if PRs fail to claim TNRB?
Anyone else who is liable to pay IHT on the surviving spouse’s death can claim it.
Is a separate claim required for each TNRB?
Yes, a separate claim must be made for each TNRB. Best to do this even if the cap means that only one TNRB will be relevant
What are the conditions for Residence NRB?
- The deceased must have died on or after 6 April 2017
- The death estate must include a Qualifying Residential Interest (QRI)
- The QRI must be ‘closely inherited’ by a ‘direct descendant’.
What is the full amount of the Residence NRB?
The full RNRB is £175,000.
What happens if the deceased’s share of property is worth less than £175,000?
It is capped at the value of the property.
What is the tapered withdrawal of the RNRB?
There is a reduction of £1 for every £2 above the £2 million threshold, with no RNRB for estates worth over £2,350,000 (or £2,700,000 if the full TRNB applies)
What qualifies as a Qualifying Residential Interest?
It is an interest in a dwelling-house which the deceased occupied as their residence at some point during their ownership.
- includes property where the deceased did not live (because of a job) but were intending to live
- does NOT include rental investment properties even if deceased lived there
What does ‘closely inherited’ include?
It includes gifts under the will, operation of the law of intestacy, and operation of the rules of survivorship.
Does not include a beneficiary with a contingent interest after death
Who are considered Direct Descendants?
Direct descendants include the deceased’s children (step/foster/adopted/guardianship), grandchildren, great-grandchildren, and their spouses or civil partners.
What is TRNRB?
It is relevant when the survivor of a married couple dies and their pre-deceased spouse did not use their own RNRB (because they didn’t own a QRI or because they left a QRI to someone who wasn’t a direct descnedant)
When can the survivor claim RNRB?
The survivor can claim RNRB provided they die after April 2017.
Does the home left to direct descendants have to be the same as the one lived in with the deceased spouse?
No, the home that the surviving spouse leaves to their direct descendants does not have to be the same house that they lived in with their deceased spouse.
How does transferring RNRB work?
Transferring the RNRB works in the same way as TNRB.
What is tapered withdrawal in relation to RNRB?
Where the survivor’s estate could claim £350,000 RNRB, this amount is reduced by £1 for every £2 in excess of £2m.
What are the requirements for the Downsizing Addition?
- The deceased gave away their QRI or downsized to a less valuable one on or after July 2015
- The former home would have been QRI if retained
- A direct descendnat inherits the replacement QRI
How is the amount of the Downsizing Addition calculated?
The amount of the addition is calculated with reference to the amount of RNRB which would otherwise be lost because the former QRI is no longer owned.
When is the Downsizing Addition relevant?
It is only relevant if there is no QRI when the estate died or the value of the new QRI following a downsizing move is less than the current maximum RNRB.
What is the maximum total NRB?
The maximum total NRB is £1 million.
How can the maximum NRB be achieved?
The components are:
Basic NRB = £325,000
RNRB = £175,000
Unused Basic NRB = £325,000
Unused RNRB = £175,000.
