Inheritance Tax

Question 1

what is the IHT rate

Answer 1

40%

Question 2

How are lifetime chargeable transfers [made into trusts] charged

Answer 2

immediately chargeable at 20% reassessed if dies within 7 years

Question 3

How are lifetime chargeable transfers [made to individuals] charged

Answer 3

not immediately chargeable but will become so if they exceed nil rate band and are made within seven years of the donor’s death

Question 4

what is IHT

Answer 4

Tax paid on the estate of a deceased person

Question 5

what is the Nil Rate Band (NRB)

Answer 5

£325,000 at 0% chargeable rate

Question 6

what is a chargeable transfer

Answer 6

transfer of value made by an individual which is not an exempt transfer

Question 7

what is a transfer of value

Answer 7

A ‘disposition’ which results in an immediate decrease in the value of the individuals estate

Question 8

what is the transfer of the NRB

Answer 8

• 1. If a married individual dies and some/all of their NRB remains unused, the PRs of the surviving spouse can claim an increase in the survivor’s NRB equal to the unused percentage of the first spouse’s NRB
• 1. Inherit some/all dead spouse’s unused NRB (equal to unused percentage)
• 1. If survives multiple spouses, can claim TNRB for all of them [cap of 100% NRB]

Question 9

when do you need to make a claim for the TNRB

Answer 9

within 2 years of the end of the month of death & separate claims for different spouse

Question 10

what is the RNRB

Answer 10

residence nil rate band = £175,000

Qualifying Residential Interest + inherited [by will/intestacy/survivorship] + by a direct descendant

Question 11

what counts as a direct descendant for RNRB

Answer 11

Child, grandchild, great grandchild + adopted/step/foster/guardian + any of their spouses/CP/widows

Question 12

what is the taper withdrawal

Answer 12

For properties over 2million - when this threshold is exceeded, the RNRB is reduced by £1 for every £2 of value by which an estate exceeds the taper threshold. Tapering can reduce the RNRB to zero.

NONE available for properties over £2.3mil (or £2.7mil where transfer applies)

Question 13

can you transfer unused RNRB?

Answer 13

YES to surviving spouse

Question 14

how do you qualify for transfer of RNRB

Answer 14

Deceased gave away their QRI or downsized to a less valuable QRI on/after July 2015; the former home would have been a QRI if retained; a DD inherits the replacement QRI and/or other assets

Question 15

when does a PET become chargeable?

Answer 15

if they do not survive 7 years after making the transfer

Question 16

what are the steps for calculating IHT on the death estate?

Answer 16

1. calculate cumulative total
2. identify assets included in the taxable estate
3. value the taxable estate
4. deduct debts & expenses
5. apply exemptions & reliefs
6. apply RNRB
7. apply basic NRB/TNRB & calculate tax

Question 17

what does spouse exemption amount to

Answer 17

100% off IHT

Question 18

what are the IHT EXEMPTIONS for lifetime & death

Answer 18

spouse exemption
charity exemption
gifts to political parties
gifts of land to housing associations
gifts to heritage maintenance funds
gifts to employee benefit trusts

Question 19

what does charity exemption amount to

Answer 19

100% exemption to any charity
if 10% of estate is left to charity; then IHT reduces to 36%

Question 20

What is BPR and what assets qualify

Answer 20

business property relief

QA:
Private shares (100%); Listed shares if 50%+ ownership (50%); ST/Partner (100%); assets owned by them but used for business (50%)

owned for 2 years

Question 21

what is APR and what assets qualify

Answer 21

agricultural property relief

QA:
Agricultural land & buildings; Farms/Cottages (if farm worker)
Occupied for agricultural purposes 2 years before; OR owned by the transferor & occupied by them/another for agricultural purposes 7 years before [fine if replaced, if from spouse = inherits ownership period]

Question 22

what are the exemptions and relief available on death only

Answer 22

1. woodlands relief (owned for 5 years - deferred until the timber is sold)
2. quick succession relief (in possession for 5 years from prior death = 100% if in 1 year prior; reduces each year and only 20% if the amount of IHT previously paid is considered)

Question 23

when does IHT400 need to be used

Answer 23

every case apart from exceptions

Question 24

What is the duty of Personal Representatives (PRs) regarding IHT and HMRC?

Answer 24

PRs must deliver an account to HMRC and pay any IHT due by completing form IHT 400.

Question 25

What must be included in the account delivered to HMRC?.

Answer 25

An account of all property in the deceased’s taxable estate, its value, and any applicable exemptions/reliefs

Question 26

What is the deadline for submitting the IHT account to HMRC?

Answer 26

12 months from the end of the month in which death occurred

Question 27

What is the deadline for paying IHT?

Answer 27

6 months from the end of the month in which death occurred.

Question 28

What is one way to pay IHT without causing undue hardship?

Answer 28

Certain assets may be paid in 10 equal annual instalments.

Question 29

Which assets qualify for IHT payment in instalments?

Answer 29

Lands, buildings, company shares, certain unquoted shares, farms, and business interests.

Question 30

What are the conditions that disqualify an estate from being excepted?

Answer 30

Gifts with reservation, multiple trust interests, foreign assets over £100,000, specified transfers over £250,000, or claiming the RNRB.

Question 31

What is form C4 used for?

Answer 31

To inform HMRC about additional assets/liabilities, corrections, changes in exemptions, or variations in beneficiary entitlements.

Question 32

Can a will be varied after accepting an inheritance?

Answer 32

Yes, but it cannot be varied more than 2 years after acceptance and a disclaimer cannot be varied.

Question 33

What should PRs do if the IHT estate increases after submitting form C4?

Answer 33

They should pay the additional IHT when sending the C4.

Question 34

what are IHT exempt estates

Answer 34

1. exempt excepted estate (no more than £3mil and no IHT payable because net value after exemptions/relief is below NRB)
2. low value excepted estate (total gross estate is below NRB)

Question 35

What conditions disqualify an estate from being classified as excepted?

Answer 35

Gifts with reservation of benefit, multiple trust interests over £250,000, foreign assets over £100,000, specified transfers over £250,000, or a claim for RNRB.