IHT principles Study Guide Flashcards
What Where I HT revenues in 2017–2018?
By how much has families paying IHT increased since 2010?
Grant of representation i.e. probate needs to be obtained before assets can be sold.
– IHT revenues were £5.2 billion in 2017-18
- Increased by 160% since 2010
Key principles of IHT.
What is IHT a tax on?
When do most charges to IHT arise?
What is the current rate of IHT on death?
What is the charge on lifetime transfers
- IHT is a tax on The transfer of assets on certain lifetime gifts or on death.
- most charges to IHT arise when transfers are made on death/ when potentially exempt transfer PET become chargeable because the donor has died within 7 years ‘ on chargeable lifetime transfers CLT’s at the time of transfer or if donor dies within 7 years of CLT being made.
- Current rate of IHT on death is 40% on the excess above nil rate band which is reduced to 36% if 10% or more of the deceased’s net estate is left to charity.
- The charge on lifetime transfers is half the death rate i.e. 20%. However if the settlor pays the IHT liability on a lifetime transfer it is assessed at 25% of the XS over the available nil rate band.
What transfers are within the charge to IHT?
- All transfers of assets (worldwide) made by UK domiciled and UK deemed domiciled individuals whether needs during lifetime or in death I was in the charge to IHT
Transfers of UK assets made by non-UK domiciled individuals (except unit trusts and OEIC’s) Weather in lifetime or on death Are within the charge to IHT
Transfers of settled property made by trustees are within the charge to IHT.
The Finance act 2017 provided new non-domicile rules which came into force sixth of April 2017. The rules affected non-UK domiciled individuals Love being tax resident in the UK for 15 tax years. also affected individuals who had a UK domicile of origin who then acquired a non-UK domicile of choice and Are now UK tax resident or may become UK tax resident in the future (UK returners)
Also affected non-UK domiciled individuals who own UK residential property through an offshore structure (trust, company or both)
Domicile
Domicile can broadly be defined as the country and individual regards as they are permanent home.
List for key points relating to domicile
- An individual cannot be without a domicile
- And individual can usually have only one country of domicile
– and individuals existing domicile will continue until it is proven that a new domicile has been acquired
– domicile is distinct from nationality, residency and citizenship.
An individual normally acquired a domicile of origin from their father at birth. An illegitimate child, or a child born after the death of your father, will take the domicile of their mother.
Deemed domicile.
This means that an individual is treated as domiciled in the UK if they fall into one of the following two categories:
- Individuals who had a UK domicile of origin, who then acquired a non-UK domicile Of choice and there are no UK tax resident or may become UK tax resident in the future (UK returners)
- Individuals who are resident in the UK for at least 15 out of the last 20 years.
Excluded property
When calculating the value of the transfer, no account is taken of the value of any excluded property. Therefore, if excluded property is given away, there will be no IHT consequences in relation to it.
Give some examples of excluded property:
- Excluded property includes assets outside the UK owned by non-UK domiciled individuals
- Since 2002, UK unit trusts and OEIC’s Are also excluded property owned by non-UK domiciled individuals
– assist placed in an offshore trust by non-UK domiciled individuals (excluding UK residential property)
The following assets are also ignored on an individual’s death:
– assets of a member of the Armed Forces on their death from wounds, accidents or disease while on active service
- Cash options that could have been taken under approved personal pension schemes instead of an annuity for a dependant.
Transfer of unused nil rate band.
When did the transfer of the unused nil rate band to become effective from?
What conditions make it eligible to claim it
- 9 October 2007.
- to be eligible to claim it, the death of the surviving spouse/civil partner must be on after ninth October 2007. There is no restriction on when the first spouse/civil partner died for their own used to know that band to be used on the second death. It’s the percentage of the nil rate band that is carried forward and used on the second death.
No rate band must be queen to send two years on the second death.
Any on used residence nil rate band can also be transferred.
Transfer to Trusts on death
Where the deceased’s will (or the rules of intestacy) requires a part of the estate goes into trust on death, there estate is chargeable to IHT in the normal way, just like assets which are left to another individual (other than to the spouse/civil partner)
Give an important exemption to this?
- And exemption to this is where assets are left in trust with a surviving spouse/civil partner having an interest in possession, the transfer is exempt, as it is regarded as an interimspouse/civil partner transfer. Since the 2006 budget estate of trust is referred to as an immediate post death interest (I PDI)
The value of the trust will be treated as part of the surviving spouse/civil partners estate And the interspousal exemption would apply to the transfer. Also the nil rate band of the first today will be available to the survivor unless it has been otherwise used.
Gifts with reservation of benefit
Describe a scenario where assets are given subject to reservation
- Such assets are not enjoyed virtually to the entire exclusion of the transferor, or
- Possession and enjoyment of the asset transferred is not bona fide assumed by the transferee
Example – virtually to the entire exclusion would, for example, allow a transferor occasional brief stays in the house they had given away without creating a reservation, however, Spending most weekends in the house would create a reservation.
When a gift with reservation is made it is treated in the same way as any other gift at the time it is made (i.e. as exempt, A PET or a CLT As appropriate) however special rules apply on the death of the transfer are:
– if the reservation still exists at the date of the transferors death, The asset is included in the transferors estate At its value at the time (not the value at the date of the gift was made)
– if the reservation ceases before death, the gift is treated as an exempt/PET/CLT made at the time the reservation ceased. The charge for IHT is based on its value at the time reservation ceased. The annual IHT exemption cannot be used against such a PET/CLT.
I HT and death.
What needs to happen before assets can be distributed on death?
- where there is a will IHT must be paid before a grant of probate can be issued allowing the assets to be distributed
– Where there is no will IHT must be paid before a grant of letters of administration can be issued and assets then distributed. In Scotland this is referred to as a grant of confirmation.
- A death estate must be reported on form IHT 400 if there is an IHT liability or on form IHT 205 if there is not
I HT on death
When Must personal representatives deliver an account to HMRC?
- The personal representative must deliver an account within 12 months following the end of the month in which the death occurred or, if later, three months following the date when they became personal representatives. If the account is late penalties apply.
On death the liability for payment is as follows:
- tax on a death death estate is paid by the personal representatives out of the state assets
– Tax on assets held within a trust is paid by the trustees, with payment out of the trust assets
– tax on assets not in the possession of the personal representatives, having been transferred by the testator subject to a reservation, is payable by the individual in possession of the assets
– tax on PET, S that have become chargeable is paid and born by the transferee
– additional liabilities on CLT’s must be paid and born by the transferee.
I HT due dates
Following death all IHT liabilities have to be paid by a certain time. Give that period?
- following death all IHT liabilities, including gift with reservation, or payable by the due date of six months after the end of the month in which the deceased died i.e. if death occurred in January the due date is 31st July.
Full inheritance tax account, which includes form IHT 400, any supplementary pages and papers Relating to probate (or confirmation in Scotland), must be submitted by 12 months from the end of the month in which death occurs. For example if death occurs in October the deadline is 31st of October the following year.
Residence nil rate band
With effect sixth April 2017 special rules came into force and apply when a main residence is passed on death to a direct descendent.
An estate will be entitled to the RNRB when?
- and individual dies on or after six April 2017
– individual owns a home, or a share of one, so that it is included in their estate
– individuals direct descendants (such as children or grandchildren) inherit the home (adopted children and stepchildren are also eligible), or a share of it
– estate is not valued at more than £2 million thereafter tapered £1 for £2
– RNRB will increase in line with CPI from 2021/22
IHT business relief, IHT quick succession relief, CGT holdover relief.
Investments were business relief is available provide clients with a solution to their IHT planning needs after only two years, will enable them to retain full access to and control over their assets, whilst also providing the flexibility to accommodate any future changes in their circumstances this is achieved by investing in a portfolio of AIM shares.
What are alternative investment market shares?
=The London stock exchange launch the alternative investment market in June 95 to provide small companies and new start-ups with an inexpensive and more flexible means of obtaining a stock market listing. Higher risk due to nature.
Qualifying shares eligible for 100% business relief therefore free from IHT provided held for at least two years and for the relief to apply shares must be held at time of death.
Business relief
List the relevant assets that qualify for business relief
- property consisting of a business or an interest in a business (such as a partnership sheer) the relief is 100%
– Securities of a training company which are unquoted and which (alone or with other securities or unquoted shares) Give the transferor control of the company immediately before the transfer - 100% - Any unquoted shares (not securities) in a trading company 100%
– shares in, or securities of, a company which I quoted and which (alone or with other such shares securities) gave the transferor Control of the company immediately before the transfer 50%
– any land or buildings, machinery or plant which, immediately before the transfer, was used wholly or mainly for the purposes of a business carried on by a company of which the transferor then had control, or by a partnership in which they were then a partner 50%
– as above for the ice it was used in a business carried on by the transferor And was settled property in which they were then beneficially entitled to an interest in possession 50%
