Inheritance Tax Flashcards
What is the inheritance tax rate charged on transfers of an individual’s property on death?
40%
If X is domiciled in the UK, transfers may be subject to IHT regardless of where in the world the […]
property is located
If the transferor isn’t domiciled in the UK, IHT is applied only to their […]
UK assets
Explain the loss to donor rule
The measurement of a value of a gift by the amount by which the gift diminishes the donor’s estate
If a donor’s spouse owns similar property and D’s property would be more valuable if the spouse’s property is taken into account, we use the _______ value
higher
What are potentially exempt transfers (PETs)?
Lifetime transfers to individuals - these are not immediately chargeable to tax but are chargeable if made within 7 years of donor’s death
Give five transfers that are exempt from IHT (exempted transfers)
- Gifts to spouse/CP
- Gifts to charities
- Small gifts
- Wedding gifts (subject to requirements)
- Normal expenditure out of income
For gifts to Donor’s spouse/CP, if spouse is not domiciled in the UK, only the first of what amount is exempt from IHT?
£325,000
What are the wedding gift limits?
(clue: from Parents, Grandparents and Great grandparents, Bride to groom, and Everyone else)
Parent - £5,000
Grandparents and Great Grandparents - £2,500
Bride to the groom or vice versa (before the wedding)- £2,500
Everyone else - £1,000
Small gift allowance are gifts per person up to what amount per year?
£250
Is the £250 exemption an all or nothing gift in relation to IHT being chargeable? (in that if a gift is over the £250, the whole amount becomes chargeable?)
Yes
Are wedding gifts all or nothing in relation to IHT being chargeable?
No - only the excess amount becomes chargeable
What is the annual exemption that can be used to offset gifts each year?
£3,000
An unused annual exemption may be _______ _______ into next year, but will _________ if it’s still not used. This means the maximum annual exemption that can be used in any year is _________
carried forward, disappear, £6,000
PETs: If a donor dies within 7 years of making a gift, who will the IHT due on the gift be payable by who?
The recipient of the gift
What are chargeable lifetime transfers?
Lifetime gifts made to a trust or company that are usually immediately chargeable to tax
Can CLTs be reduced by annual exemptions?
Yes
CLTs: what is the tax rate if the IHT is paid by:
1. Trustees
2. Donor
- 20%
- 25%
If CLTs were made in the previous _ _____ before the transfer was made, we have to add those to the _______ ____ to determine whether the nil rate band has been exceeded
7 years, current gift
PETs: to work out the nil rate band remaining, we deduct any gross chargeable transfers made in the _ ______ before the PET, not before the date of _______
7 years, death
If there are more than 3 years between the date of the PET and the donor’s date of death, what is available to reduce the tax owed?
Taper relief
Give the taper relief amount for the following times between date of gift and date of death:
- 0-3 years
- 3-4 years
- 4-5 years
- 5-6 years
- 6-7 years
- 0-3 years = 0%
- 3-4 years = 20%
- 4-5 years = 40%
- 5-6 years = 60%
- 6-7 years = 80%
Taper relief reduces the ___ _________ instead of the amount of the gift.
tax payable
Marcus gave a gift of £500,000 (after exemptions) to his son Nathan in March 2013. Marcus died in January 2020.
Because Marcus died within 7 years of the gift, the PET fails and the gift is a chargeable transfer.
If you assume Marcus hasn’t used any of his NRB, what is the amount of IHT due on the gift?
£14,000
(remember taper relief! Because Marcus died within 6-7 years of the PET, 80% taper relief is available, meaning only 20% of the tax amount is payable (that is, 20% of £70,000)
If a donor dies within _ ______ of making a CLT, the ________ will owe additional IHT on CLT
7 years, trustees
What is business relief on IHT?
A relief applied before annual exemptions that reduces the value of business property given as a lifetime gift to a trust or at death
In which 2 situations is 100% business relief applied?
- D transfers a sole trade business or partnership interest to a trust
- D transfers shares in an unlisted trading company that have been owned for at least 2 years
In which 2 situations is 50% business relief applied?
- D transfers shares in a quoted trading company if they own more than 50% voting share for at least 2 years; or
- D transfers land or buildings or plant and machinery used by a p’ship/company in their control owned for at least 2 years
For how long must a donor own a business for business relief to apply?
At least 2 years
Business relief will only be given if the business carried on by the sole trader, partnership, or company is…
trading
Is a business whose trade is to make or hold investments or to deal in property eligible for business relief?
No
What is agricultural relief?
A relief used where D transfers agricultural property to a trust during life or at death
What is the agricultural relief percentage?
100%
What are three requirements for Agricultural relief to apply?
- Land used for purposes of agriculture in the UK or EEA
- D owned the land transferred for at least 2 years or
- D leases out land transferred to trust if used for agricultural purposes by the tenants and owned by D for at least 7 years
What two gifts on death are exempt?
- To spouse or CP
- to charities
If the decedent gives more than 10% of their net chargeable assets (that is, the value of the estate after deducting all reliefs, exemptions, and the NRB) to a charity, the IHT is reduced to what percentage?
36%
If a decendent spouse didn’t use all their NRB when they died before the decendent, the ______ ________ of NRB may be transferred to the decedent to give them an uplift in their NRB by up to an additional ____
unused proportion, 100%
What is a residence nil rate band?
An additional NR available if an estate includes a home that was used as D’s private residence if the residence/proceeds are left to lineal descendants
Do the descendants of D need to occupy the residence after the death for residence NRB to apply?
No
What is the residence NRB the value of?
The dwelling at the time of death
Estates with a net value over what amount result in the Residence NRB is tapering away at the rate of £1 for every £2 over that limit?
£2,000,000
Can unused residence NRB be transferred between spouses on death?
Yes
What is quick succession relief?
A relief given when individual’s estate was increased by a gift made to them in the 5 years before death upon which IHT was paid.
What is a gift with reservation of benefit and what’s the impact of it on the donor’s estate?
When A gives away an asset but continues to benefit from it, the gift is treated as being in the donor’s estate when they die
In most cases, who is liable for IHT on property transferred on death?
Personal representatives
For gifts with a reservation of benefit, the _____ of the gift is primarily liable to pay IHT, but the ___ will be liable if not paid within __ ______ after death
donee, PRs, 12 months
Inheritance tax payable on lifetime gifts as a result of death is always paid by the _______ of the gift. The extra tax is due _ _____ after the end of the month of death.
recipient, 6 months
Which 4 assets can IHT be paid in instalments?
- Land
- Shares
- Part or all of a business
- Agricultural land
(note that most Agricultural land is exempt though)
