IHT (Lifetime)

Question 1

What 2 LIFETIME Transfers are subject to IHT?

Answer 1

(1) Failed PETs
(2) LCTs

Question 2

What is a ‘Failed PET’?

Answer 2

Transfer from one person to another where the transferor dies WITHIN 7 YEARS (of Transfer)

Question 3

(1) What type of Gift CANNOT be a PET?
(2) What are 2 common examples of this?

Answer 3

(1) GROB (‘Gift With Reservation of the Benefit)
(2)
(a) Gifting house but continuing live in it
(b) Gifting rental property but receiving income

Question 4

What are 2 examples of an LCT?

Answer 4

(1) Transfer to a TRUST
(2) Transfer INVIDUAL to COMPANY

Question 5

What is the IHT Chargeable for a LCT?

Answer 5

AT TRANSFER - 20%
IF T dies WITHIN 7 YEARS - 40%

Question 6

What are the 6 steps for Calculating IHT on LIFETIME Transfers (final 2 steps if Transfer dead)?

Answer 6

(1) Calculate CUMULATIVE TOTAL
(2) Identify VALUE TRANSFERRED
(3) Apply EXEMPTIONS & RELIEFS
(4) Apply NRB & Calculate TAX
IF Transferor DIED
(5) Apply TAPER
(6) Credit TAX ALREADY PAID

Question 7

What are the 6 steps for Calculating IHT on LIFETIME Transfers (final 2 steps if Transfer dead)?

Answer 7

(1) Calculate CUMULATIVE TOTAL
(2) Identify VALUE TRANSFERRED
(3) Apply EXEMPTIONS & RELIEFS
(4) Apply NRB & Calculate TAX
IF Transferor DIED
(5) TAPER
(6) Credit TAX ALREADY PAID

Question 8

Step (1) Calculate CUMULATIVE TOTAL

What is the ‘Cumulative Total’?

Answer 8

Total CHARGEABLE VALUE of all CHARGEABLE TRANSFERS made in the 7 years PRIOR TO DEATH

Question 9

Step (1) Calculate CUMULATIVE TOTAL.

The ‘Cumulative Total’ is the Total CHARGEABLE VALUE of all CHARGEABLE TRANSFERS made in the 7 years PRIOR TO DEATH.

What is the ‘Chargeable Value’?

Answer 9

Value of a CHARGEABLE TRANSFER after EXEMPTIONS & RELIEFS have been applied

Question 10

Step (1) Calculate CUMULATIVE TOTAL.

The ‘Cumulative Total’ is the Total CHARGEABLE VALUE of all CHARGEABLE TRANSFERS made in the 7 years PRIOR TO DEATH

What is a ‘Chargeable Transfer’? (2 components)

Answer 10

(a) Failed PETs
(b) LCTs

Question 11

Step (2) Identify VALUE TRANSFERRED.

(1) What is the ‘Value Transferred’?

(2) What is the general rule for the Value Transferred for:
(1) Cash
(2) Non-cash assets
(3) Asset transferred less than ‘consideration’ (e.g. sale house family member less than market value)

Answer 11

(1) LOSS to Transferor (date of transfer)
(2)
(a) Cash value
(b) Market value
(c) Difference price paid and market value

Question 12

(3) Apply EXEMPTIONS & RELIEFS

What are the 5 Exemptions & Reliefs that apply ONLY to LIFETIME Transfers?

Answer 12

(1) ANNUAL Exemption (AE)
(2) FAMILY MAINTENANCE Exemption
(3) SMALL GIFTS Allowance
(4) NORMAL EXPENDITURE from INCOME
(5) GIFTS IN CONSIDERATION OF MARRIAGE Exemption

Question 13

Step (4) Apply NRB & Calculate TAX

How should the NRB Available be calculated?

Answer 13

NRB - CUMULATIVE TOTAL (Step 1)

Question 14

Step (4) Apply NRB & Calculate TAX

What IHT tax rate should be applied for:
(1) LCT
(2) Re-assessed LCT (i.e. T died within 7y)
(3) Failed PET

Answer 14

(1) 20%
(2) 40%
(3) 40%

Question 15

Step (5) Apply ‘TAPER’ (ONLY IF T DEAD).

What is the ‘Taper’ if the T died X years after TRANSFER
(1) 0 - 3 years
(2) 3 - 4 years
(3) 5 - 6 years
(4) 6 - 7 years

Answer 15

(1) 0% (No Taper)
(2) 20%
(3) 40%
(4) 60%
(5) 80%

Question 16

Step (6) Credit TAX ALREADY PAID.

What does this mean?

Answer 16

Subtract any IHT paid on an LCT in Lifetime (i.e. 20% at time of transfer)