IHT on death

Question 1

Order of determining tax

Answer 1

1. What falls into a person’s taxable estate
2. Value the estate to get gross value
3. Deduct any liabilities to get net value
4. Apply exemptions
5. Apply reliefs
6. Ascertain applicable NRB
7. Inheritance tax payable by PRs
8. Income tax and CGT payable by PRs

Question 2

Calculating net value of estate

Answer 2

1. Identify what falls into the taxable estate
   - consider life interest trusts
2. Value the estate to get the gross value
   - probate value (i.e. date of death value)
   - consider “loss to the donor” principle
3. Deduct liabilities
   - funeral expenses and debts deductible

Question 3

Once net value is calculated, you need to consider exemptions. Common exemptions?

Answer 3

• anything passing to charity or spouse deductible
• gifts of less than £250 (all or nothing)
• wedding gifts (not all or nothing)
• annual exemptions (£3,000 x 2)

Question 4

Once net estate is determined, consider reliefs. Common reliefs?

Answer 4

Business asset disposal relief will be applied before annual exemption
- applies if donor was trading and owned assets at least 2 years before death
- 100% relief if the donor transfers (i) a sole trade business or partnership interest or (ii) shares in an unlisted company
- 50% relief if the donor transfers (i) shares in a listed company if the donor has more than 50% of the company voting shares (ii) land, buildings or machinery used in a business they were a partner or controlled (iii) land, building or machinery used in the business and held in a trust that benefitted them

Agricultural property relief applies after annual exemption
- 100% relief
- either agricultural land or buildings used for the purpose of agriculture and situated in the UK, the channel islands, the Isle of Man or the EEA
- must have owned the land for at least two years if used in business
- also available if agricultural land leased out donor having owned it for at least seven years
- a farmer running a farming business is eligible for both business relief, and agriculture relief

Question 5

Ascertain what NRB applies after reliefs and exemptions

Answer 5

• consider any transferable NRBs
• residence NRBs
• check for gifts within seven years of death
• Check for gifts with reservation benefit
• Significant charitable donations

Question 6

Inheritance tax payable by PRs - procedure

Answer 6

1. Typically IHT is due six months from the end of the month in which the descendent died.
2. For property transfers, taxes payable from residue, unless otherwise stated
3. Reservation of benefit, donee is primarily liable but PR is liable if not paid within 12 months
4. Joint tenancy? PR liable, but borne by beneficiary