Inheritance Tax

Question 1

Inheritance tax

Answer 1

• tax payable on the value of a deceaseds estate upon death and prior to distribution of the estate to the beneficiaries
• inheritance tax act 1984

Only applicable to estates above 325k- first 325k is the nil boundary
Must be paid before any application for a grant of probate can be made to court- receipt of IHT must be attached to an application for grant of probate

2 current rates
- death rate= 40%
- reduced rate= 36% if 10% of estate if left to charity

Includes lifetime transfer of properties made within 7 years of death

Question 2

Exemptions and relief

Answer 2

NIL band rate= first 325k is tax free
Main residence NIL band rate- main residence where deceased lived immediately prior to death is exempt from IHT up to a max of 175k. Any value above is added to total of estate and taxable at usual rate

So not tax payable on the first 500k

Agricultural or business property relief- 50% or 100% on properties used for agriculture or business purposes

Transferability of NRB- an unused NRB can be transferred from one spouse to the other

Question 3

Key features of inheritance tax

Answer 3

Only includes assets deceased owned at time of death
Joint ownership of property wont classify as deceased property as it will just go to the other person
Debt must be subtracted from net estate as well as including outstanding mortgages- have to deduct this before calculating inheritance tax
You dont get the property unless tax is paid
If you dont pay IHT and have debts they dont have to be paid straight way they attach to property and become beneficiaries duty to pay creditor

Question 4

Spousal exemption

Answer 4

• every asset given to spouse is exempt from tax
• but when they die- whoever gets that property will have to pay tax
• each person has a 325k exemption

Question 5

When is IHT due

Answer 5

• due 6 months after deceaseds death
• where applicable it must be paid within 12 months otherwise it attracts a late payment penalty
• it is PR’s responsibility to gather the estate, value them and submit valuation to HMRC for IHT assessment
• even where tax isnt payable a return of the value must be made to HMRC and a receipt will be given confirming estate isnt subject to tax