IHT: Lifetime Flashcards
When thinking about IHT on lifetime transfers what are the two separate calculations that need to be considered?
Tax due on an LCT
Tax due as a result of the transferor dying within seven years of a lifetime transfer (LCTs and failed PETs)
What is the process for calculating IHT on lifetime transfers?
A. Calculate the cumulative total
B. Identify the value transferred
C. Apply exemptions and reliefs
D. Apply basic NRB and calculate tax at the appropriate rate
If the transferor dies within 7 years, the LCT must be reassessed, using the same 4 steps (but applying a tax rate of 40% at Step D). It is then necessary to:
E. Apply taper relief at the appropriate rate
F. Apply credit for any tax paid during the transferor’s lifetime. (Credit is given for any tax paid in their lifetime but no refund is given if the tax due on death is less than that already paid at the lifetime rate).
PETs are not chargeable unless the transferor dies within 7 years, in which case they are reassessed at the death rate of 40%. Follow Steps A to E to calculate the tax due.
What is the cumulative total?
The cumulative total is calculated by adding up the value of all chargeable transfers made in the 7 years prior to the transfer.
Although cumulation only takes into account chargeable transfers made in a 7 year period, where an LCT or PET is reassessed, tis can mean looking back as far as 14 years before the transferor’s death.
How do you identify the value transferred?
For lifetime transfers, the value of a transfer is assessed by reference to the loss in value to the donor at the date of the transfer.
Where cash sums are given this will be the same as the gain to the donee. For gifts of other assets, this will often, but not always, be the same as the value received by the donee.
What exemptions and reliefs apply?
Spouse exemption
Charity exemption
Family maintenance exemption
Annual exemption: £3,000 per tax year. Once the AE for the current year has been used up, any part of the previous years’ AE can be claimed.
Small gifts allowance
Normal expenditure from income
Marriage exemption
Business property relief
Agricultural property relief
Taper relief
Does the RNRB apply to lifetime transfers?
No
