Inheritance Tax Flashcards
What are the three occasions where IHT is charged?
(i) Death;
(ii) Lifetime gifts to individuals within 7 years of death;
(iii) Lifetime gifts to a company or into a trust
What are the four steps when calculating the charge to IHT on lifetime transfers?
(i) Identify the cumulative total;
(ii) Find the value transferred;
(iii) Apply any relevant exemptions and reliefs;
(iv) Deduct the NRB and apply tax at the appropriate rate.
When do lifetime gifts to individuals become chargeable?
Only if the deceased died within 7 years of the gift.
What impact do lifetime transfers have on the NRB?
Lifetime transfers can reduce the amount of NRB on death.
Assessing the amount the NRB has reduced due to lifetime transfers is ‘cumulation’.
When would trust property be included in a person’s taxable estate on death?
When the deceased was entitled to claim the income from the trust property with no power on the trustee’s behalf to decide whether they should receive it. The trust would have to have been made on the death of a settlor (testamentary trust).
What four reliefs are available during a lifetime only?
Annual exemption: £3,000 exemption to transfer each year, which can be carried forward if not used to create a maximum exemption of £6,000;
Small gifts: Can give multiple £250 gifts, but cannot be to the same person;
Normal expenditure: E.g. care home payments;
Marriage exemption: (i) £5,000 by a parent; (ii) £2,500 by a grandparent; (iii) £1,000 otherwise
What are the rates of tax applicable to LCTs?
0% on the first £325,000;
20% on the balance of the transfer after the NRB is exhausted;
40% if the transferor dies within 7 years (initial 20% is re-assessed)
What is a ‘GROB’?
Gift with reservation of benefit: The deceased transferred property in their lifetime but retained all the enjoyment of the property, e.g. gifting a house but continuing to live there.
What are the steps when finding the value of tax payable on a death estate?
(i) Cumulative total;
(ii) Value of assets in the estate;
(iii) Deduct debts/expenses;
(iv) Apply exemptions/reliefs;
(v) Apply the NRB + RNRB then tax
What can the potential total NRB be?
£1,000,000
£325,000 NRB; £175,000 RNRB - then, the possibility of the interest being transferred.
How is RNRB applied?
If an estate is worth less than £2,350,000 and has a RESIDENTIAL (not commercial or letting) property interest that is inherited by a lineal descendant or a spouse, then:
£175,000 (or whatever the value of the home is, if less) is added onto the NRB.
What is the value of jointly owned property when valuing an estate?
Unless the other owner is a spouse, there is a 10% discount for commercial property and a 15% discount for residential property.
It reflects the potential hardship of being able to sell jointly owned property.
What reliefs apply on the death estate (Also applies to lifetime transfers)?
Spouse exemption - Any property passing to a spouse is exempt from IHT, and doesn’t take up any of the NRB;
Charity exemption - any property going to charity is exempt from IHT;
Business Property Relief - qualifying business property can benefit from a 100% or 50% discount;
How does Business Property Relief apply?
(i) 100% Relief - (A) a business or an interest in a business; (B) company shares that are not listed;
(ii) 50% Relief - (A) listed company shares that gave the deceased a controlling interest; (B) land, buildings, machinery used for business
Must have been owned for a minimum of 2 years
How does Agricultural Property Relief apply?
(i) 100% relief - transferor had the right to vacant possession or was subject to a letting after 1 Sep 1995;
(ii) 50% relief - other cases.
Must have been owned or occupied by the transferor for 2 years, or let out for 7. Had to have been used for agricultural purposes.
