Inheritance tax Flashcards
How does domicile status affect IHT?
UK domiciled individuals subject to IHT on worldwide assets, whereas non-UK domiciled individuals subject to IHT on UK assets only
How much can be gifted as an exempt transfer under the “small gifts” rule?
£250 per recipient per tax year
What is the annual exemption for transfers, and can you use the exempt amount from previous years?
£3,000 per donor, and you can utilise any unused AE from previous tax year
How are inter-spousal lifetime transfers treated for IHT purposes?
They are exempt, unless recipient is non-UK dom in which case the limit is £325k (in addition to NRB)
What are the limits for exempt transfers when it comes to marriage gifts?
£5k from each parent
£2.5k from remoter ancestor
£1k from any other transferrer
What are the qualifying criteria for gifts to political parties to be considered exempt transfers?
Must have at least 2 MPs; OR
at least 1 MP & >150k votes at the last election
Gifts made directly to individuals and/or bare/disabled trusts are classed as what type of lifetime transfer?
Potentially exempt
How are PETs treated for IHT purposes?
No lifetime IHT
Become fully exempt if donor lives at least another 7 years
Gifts that are not exempt or PET and/or gifts to discretionary/Interest-in-Possession trusts are classed as what type of lifetime transfer?
Chargeable lifetime
What rates are charged when a CLT is made?
0% if within NRB
20% on excess above NRB if paid by trustees
25% on excess above NRB if paid by donor
If the donor dies within 7 years of making a CLT, what happens to the IHT following death?
It may be reduced by the amount of lifetime IHT paid
What percentage of a person’s estate must be left to charity to benefit from the reduced IHT rate?
10% of net estate (i.e. total estate minus relevant NRBs), as written in deceased’s will
How long after the estate has been paid can HMRC see IHT records for?
20 years
What are gifts with reservation of benefit?
Gifts made where the donor continues to benefit from the gift
Can expenses incurred when dealing with the deceased’s estate be deducted from the chargeable death estate?
No
Why is taper relief only practically of use for lifetime transfers above the NRB?
As taper relief only tapers the tax due - as transfers are assessed chronologically there is no benefit if the donor dies within 7 years of making gifts as they will be assessed against the NRB first
What changes can be made to alter the deceased’s wishes after death?
Non-UK domicile electing to be treated as a UK dom within 2 years of death
Disclaimer
Deed of variation
What is a disclaimer?
The potential beneficiary doesn’t want to accept the inheritance. Must be done within 2 years of death and disclaiming person must make statement to HMRC that it is for IHT purposes
What is a deed of variation?
Where the deceased’s will/laws of intestacy are changed.
Must be submitted within 2 years of death
Must be signed by all involved with variation, including those who lose out
Statement must be made that it is to have effect for IHT purposes
How does the transferable NRB work?
Transferred between spouses/RCPs
Unused % of NRB on 1st death transferred for use on 2nd death
Maximum 100% of NRB can be transferred
Resulting NRB can never exceed 2x NRB
How does the residence NRB work?
£175k extra NRB gained for each individual if main residence is bequeathed to direct descendants
Transferable between spouses/RCPs
Value of residential property may limit amount of RNRB
Reduced by £1 for every £2 the death estate is over £2m
Are assets that qualify for business relief included in the taper calculation for the RNRB?
Yes
What assets get 100% and 50% business relief?
100%:
Business (but not hobby/investment businesses)
Shares in unlisted company
50%:
Shares controlling at least 50% of voting rights of a listed company
Land/buildings individually owned but used in a business
What are the criteria to qualify for business relief?
Must have been owned for at least 2 years and not subject to a binding contract of sale
