Inheritance tax

Question 1

How does domicile status affect IHT?

Answer 1

UK domiciled individuals subject to IHT on worldwide assets, whereas non-UK domiciled individuals subject to IHT on UK assets only

Question 2

How much can be gifted as an exempt transfer under the “small gifts” rule?

Answer 2

£250 per recipient per tax year

Question 3

What is the annual exemption for transfers, and can you use the exempt amount from previous years?

Answer 3

£3,000 per donor, and you can utilise any unused AE from previous tax year

Question 4

How are inter-spousal lifetime transfers treated for IHT purposes?

Answer 4

They are exempt, unless recipient is non-UK dom in which case the limit is £325k (in addition to NRB)

Question 5

What are the limits for exempt transfers when it comes to marriage gifts?

Answer 5

£5k from each parent
£2.5k from remoter ancestor
£1k from any other transferrer

Question 6

What are the qualifying criteria for gifts to political parties to be considered exempt transfers?

Answer 6

Must have at least 2 MPs; OR
at least 1 MP & >150k votes at the last election

Question 7

Gifts made directly to individuals and/or bare/disabled trusts are classed as what type of lifetime transfer?

Answer 7

Potentially exempt

Question 8

How are PETs treated for IHT purposes?

Answer 8

No lifetime IHT
Become fully exempt if donor lives at least another 7 years

Question 9

Gifts that are not exempt or PET and/or gifts to discretionary/Interest-in-Possession trusts are classed as what type of lifetime transfer?

Answer 9

Chargeable lifetime

Question 10

What rates are charged when a CLT is made?

Answer 10

0% if within NRB
20% on excess above NRB if paid by trustees
25% on excess above NRB if paid by donor

Question 11

If the donor dies within 7 years of making a CLT, what happens to the IHT following death?

Answer 11

It may be reduced by the amount of lifetime IHT paid

Question 12

What percentage of a person’s estate must be left to charity to benefit from the reduced IHT rate?

Answer 12

10% of net estate (i.e. total estate minus relevant NRBs), as written in deceased’s will

Question 13

How long after the estate has been paid can HMRC see IHT records for?

Answer 13

20 years

Question 14

What are gifts with reservation of benefit?

Answer 14

Gifts made where the donor continues to benefit from the gift

Question 15

Can expenses incurred when dealing with the deceased’s estate be deducted from the chargeable death estate?

Answer 15

No

Question 16

Why is taper relief only practically of use for lifetime transfers above the NRB?

Answer 16

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

Question 17

What changes can be made to alter the deceased’s wishes after death?

Answer 17

Non-UK domicile electing to be treated as a UK dom within 2 years of death
Disclaimer
Deed of variation

Question 18

What is a disclaimer?

Answer 18

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

Question 19

What is a deed of variation?

Answer 19

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

Question 20

How does the transferable NRB work?

Answer 20

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

Question 21

How does the residence NRB work?

Answer 21

£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

Question 22

Are assets that qualify for business relief included in the taper calculation for the RNRB?

Answer 22

Yes

Question 23

What assets get 100% and 50% business relief?

Answer 23

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

Question 24

What are the criteria to qualify for business relief?

Answer 24

Must have been owned for at least 2 years and not subject to a binding contract of sale

Question 25

What are the criteria to qualify for agricultural relief?

Answer 25

Must have owned the property for at least 2 years (if owner-occupied) or at least 7 years (if tenanted)

Question 26

What assets get 100% and 50% agricultural relief?

Answer 26

100%:
Land owned and farmed by the donor
Land let on a short-term grazing licence
Land let on a tenancy started on/after 1/9/95
50%:
All other qualifying scenarios

Question 27

How is the asset value assessed for agricultural relief?

Answer 27

It is based on its agricultural value, not potential development value

Question 28

What is post-mortem relief?

Answer 28

Where the value of assets in the estate are reassessed if they have reduced in value since death

Question 29

What assets qualify for post-mortem relief?

Answer 29

Value of quoted shares sold within 12 months of death
Value of land/buildings sold within 3 years of death

Question 30

What is quick succession relief?

Answer 30

Where the IHT is reduced on a death estate that includes assets received in the previous 5 years from a taxed estate

Question 31

How is IHT reduced on the estate using quick succession relief?

Answer 31

IHT is reduced by ((E2-I1)/E2 )×I1×Q where:
E2 is the gross inheritance
I1 is the IHT paid on the 1st estate
Q is the relevant QSR %

Question 32

Describe the 14-year rule

Answer 32

The tax on lifetime transfers in the seven years before death must be recalculated at the 40% death rate. Any chargeable transfers in the seven years before this gift will reduce the available NRB, thus increasing the amount of IHT payable on the gift