Inheritance Tax Flashcards
What is a lifetime chargeable transfer (LCT)?
Lifetime transfers of value which are immediately chargeable to IHT at the lifetime rate of 20%.
If the transferor dies within 7 years, the LCT will be reassessed to tax at the death rate of 40%.
Taper relief if the transferor dies between 3-7 years after making the transfer.
What is a potentially exempt transfer (PET)?
Lifetime transfers which COULD become chargeable to IHT depending on whether the transferor survives for 7 years after the transfer.
If the transferor doesn’t survive 7 years, the PET fails and becomes chargeable.
Taper relief if the transferor dies 3-7 years after making the transfer.
LCTs vs. PETs:
Both are transfers for value made during the transferor’s lifetime.
PETs can only be made to individual persons, bare trusts in favour of individual persons or trustees of a disabled trust.
Everything else must be an LCT.
How do you calculate the value of a lifetime transfer?
By reference to the loss in value to the donor.
How do you calculate the value of the death estate?
The value is calculated by refer nice to the market value of items in the estate on the date of death.
What is the annual exemption?
Individuals can make gifts of up to £3,000 each year free from IHT.
Once the AE for the current tax year is used in full, a transferor may look back to the previous tax year and use any part of the AE from the previous tax year.
Max of 2 x AE 6k = available to use against a transfer.
What is the scope of family maintenance (s11 IHTA)?
Payments are not treated as payments for IHT purposes if made to:
A spouse/former spouse (if part of a divorce settlement)
Minor child for maintenance, education, training/ if over 18 and in full time education/training
A dependent relative for their care.
What is the small gifts allowance (s20 IHTA)?
Small gifts up to £250 per recipient can be made free from tax.
Marriage exemption:
A gift in consideration of marriage is exempt up to:
£5,000 if made by a parent of one of the parties
£2,500 if made by one party of the marriage to the other
£2,500 if made by older family members - grandparents etc
£1,000 in any other case
What is the spouse exemption?
Gifts between spouses during life and following death are completely exempt.
Scope of business property relief:
Reduces the IHT payable on qualifying business property.
Business assets must have been owned for a qualifying period of time - at least 2 years immediately prior to the transfer.
100% BPR applies in respect of all private company shares, partnership interests and to a sole trader business;
50% BPR applies to quoted shareholdings and to assets owned by a taxpayer used for business purposes.
What is agricultural property relief?
Applies to agricultural land/buildings (places of agricultural activity). Farmhouses and cottages may qualify if they have been occupied for the purposes of agriculture.
Property must have been occupied for agricultural purposes for at least 2 years (if owner occupied) or 7 years (if someone else occupied).
100% relief can be claimed in most cases.
How much is the residence nil rate band (RNRB)?
£175,000
Surviving spouse/civil partner can inherit the unused portion of their RNRB
What is the cumulative total?
All the chargeable transfers made in the 7 years prior to the transfer.
What is included within the taxable estate?
As a general rule, all property to which the deceased was beneficially entitled at the date of death is included in the estate for IHT purposes.
ALL jointly owned property- whether TiC (tax and distribution) or JT (just tax)
