Inheritance Tax Flashcards
Basics of iht
Transfers on death and transfers within 7 years of death or chargeable transfer during life:
0% on 325k being the NRB. And 175k on the first 175k of property for most estates
40% above 325k
36% where least 10% of NET ESTATE is donated to charity
20% on Lifetime gifts above 325k
If a CLT is made and no other gift has been made this will take up the NRB and no tax will be due
Cumulation
The 7 year look back when considering if a gift will be a chargeable gain
Liability to IHT
Anyone who domicile will have liability to IHT on worldwide assets
Anyone non domicile will only have IHT on the UK based assets
Mitigate a liability to IHT
Give away assets
Give away but keep control- trusts
Insure against liability
Residence nill rate band
Where part of estate is made up of a main residence, the residence nrb is applied, giving each person 175k relief
In order to qualify.
Person must die after 2017
Person must own home or share of one
Their direct descendants such as children or grandchildren must inherit the property or a share of it
Transferable NRB for IHT
Where a partner dies the estate automatically transfers across to surviving spouse, using no NRB, where this is the case the surviving spouse can use that NRB when they die
If gift X amount to daughter this will use up% of NRB
Giving money away using exemptions
Annual exemption - 3000
You can back date this 1 year so if don’t use any can give 6000
Note if want to give 5k it will use 3k from this year and 2k carried over from last year and next year back to 3k
Small gift exemption - available to unlimited amount of people to give 250, providing none benefit from 3k
The ‘normal out of income exemption’ - gifts made from surplus income, providing individuals standard living not comprised. Examples protection premium s it regular savings for children i.e jisa
Gifts in consideration of marriage / civil partnership - 5k from parents, 2.5k grandparents, 1k anyone else
Unlimited gift to charity or political parties
Gifts between spouses and civil partners
Gifts between spouses and civil partners providing both are UK domicile are exempt in full
Where one is UK Dom and one is not, 325k NRB is avail plus’s special 325k additional NRB so 650k can be transferred
Chargeable lifetime transfers CLTs
Where one person’s estate goes down in value but no one else’s goes up in value
Where the gift is above the NRB on the 7 year look back this will draw an immediate tax charge of 20%.
I.e if 325k CLT is the only transfer made no tax due at 20% as is within NRB
Payment practically is due 6 months after the transfer was made
If death occurs within 7 years the CLT will be bought back into the estate and a further 20% will be due
Potentially exempt transfers
one ones estate goes down and another’s goes up
PET are never chargeable whilst the individual is still alive and only have IHT liability if donor dies in within 7 years over NRB
If donor survives 7 years, it becomes an exempt transfer
If not it is a chargeable transfer and comes back into donors estate
As with CLT oldest gives takes up first part of NRB.
Taper relief
Relief on the tax due not the gift itself
Where 3k allowance not used, this can be taken off before considering tax.
0-3 - 40%
3-4 - 32%
4-5 - 24%
5-6 16%
6-7 - 8%
Simultaneous death
Where both parties if a married couple die together, general rule is oldest died first but for IHT they are deemed to die together
Quick succession relief
Where tax is paid in transfer if death then the beneficiary does shortly afterwards, not fair for second liability of tax to arrive relief as follows
0-1 year 100% relief
1-2 80%
2-3 60% …
Calculation as follows
(Net gift received/gross gift received) X tax paid , QSR %
Reliefs for IHT
Business relief - 100% for interests in unincorporated businesses e.g. sole traders or partnerships or for any shareholding in AIM it EIS and SEIS
To qualify must be held for 2 yrs
Agricultural property relief
Land, building, crops but not livestock or equipment
100% for owner occupied farms, 50% for interest in let farms where lease is over 1 year period
Woodland relief
Applies to timber and not land value, tax deferred until timber is actually sold
Pre owned asset tax
Where give away asset but still get benefit from it - taxed through income tax on annual basis
No tax due where benefits in a year do not exceed 5k
