Inheritance Tax

Question 1

What is diminution in value for inheritance and cap gains

Answer 1

how much has owners estate fallen in value by (usually MV). Movement in owner estate

IHT= Value before - Value after
CGT= mv of part transferred

Question 2

3 stages of inheritance tax proforma

Answer 2

CLD (chargeable, lifetime, death)

 Chargeable amount- how much subject to IT
 Calc lifetime tax- IT due while still alive
 Calc death tax- IT due when someone dies

Question 3

Give 4 exemptions to lifetime gifts

Answer 3

Small gift below £250 per TY

Marriage exemption- Parent = £5000 and Grandparent = £2500 and anyone else = £1000

Normal expenditure outside income- regular payment made from donors income which doesn’t affect donor’s standard of living

Annual exemption= £3000 which can be carried forward 1 tax year

Question 4

Give 3 exemptions to ALL gifts

Answer 4

Made to spouse
Charity
Political party with min 1 MP and 150k votes

Question 5

What is PET and CLT and what are the rules

Answer 5

They are gifts

Chargeable Lifetime Transfer= gift to trust. Nil rate band= £325k over 7 years. Trustees pay 20% tax and donor pays 25% (assume 25%)

Potentially Exempt Transfer is anything else- usually to human

Question 6

How do you calc Gross Chargeable Transfer for CLT and PET

Answer 6

If trustee pays tax- GCT= chargeable amount
If donor pays tax- GCT= chargeable amount + lifetime tax
For PET is always chargeable amount

Question 7

How do you treat NRB in stage 3 (death tax)

Answer 7

before removing NRB of £325,000, reduce this by gross chargeable transfer within 7 years prior to that PARTICULAR transfer

Question 8

How do you value shares on Stock Exchange

Answer 8

Lower of:
 Quarter rule: lower quoted price + ¼ x (higher quoted- lower quoted price)
 Avg of highest and lowest marked bargains

Question 9

When does related property rules apply

Answer 9

When property transferred to spouse, charity, political party within 5 years of death

Question 10

In terms of related property rules, what is the formula for the value of property AND shares

Answer 10

property value= value of whole property x (transferors value / (transferors value + value of related property))

share value= value of whole shareholding x (transferors number of shares / total related shareholding)

Question 11

What is the death estate and what is removed? what is a charitable legacy

Answer 11

It is all assets owned - debts, taxes and funeral expenses

A charitable legacy is charity left in will which is exempt from IHT and unlock lower inheritance tax rates.

Question 12

Rule for charitable legacy

Answer 12

10% net chargeable estate left for charity leads to death tax falling from 40% to 36%

Question 13

How does NRB work in death tax stage 3 for death of spouse

Answer 13

Unused proportion can be transferred to surviving spouse

Question 14

What is Quick Succession Relief and give the formula

Answer 14

Reduces inheritance tax on death estate if property acquired by deceased in 5 years before death and there has been a charge on inheritance tax on first transfer

tax charge on first transfer x (increase in transferee estate / diminution in transferor estate) x %

(% given in tax table)