Inheritance Tax Flashcards
What is diminution in value for inheritance and cap gains
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
Give 4 exemptions to lifetime gifts
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
Give 3 exemptions to ALL gifts
Made to spouse
Charity
Political party with min 1 MP and 150k votes
What is PET and CLT and what are the rules
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. No lifetime on this only death on those within 7 years (ignore section 2)
How do you calc Gross Chargeable Transfer for CLT and PET
If trustee pays tax- GCT= chargeable amount
If donor pays tax- GCT= chargeable amount + lifetime tax
For PET is always chargeable amount
How do you treat NRB in stage 3 (death tax)
before removing NRB of £325,000, reduce this by gross chargeable transfer within 7 years prior to that PARTICULAR transfer including PET
How do you value shares on Stock Exchange
Lower of:
Quarter rule: lower quoted price + ¼ x (higher quoted- lower quoted price)
Avg of highest and lowest marked bargains
When does related property rules apply
When property transferred to spouse, charity, political party within 5 years of death
In terms of related property rules, what is the formula for the value of property AND shares
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)
What is the death estate and what is removed? what is a charitable legacy
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.
Rule for charitable legacy
10% net chargeable estate left for charity leads to death tax falling from 40% to 36%
How does NRB work in death tax stage 3 for death of spouse
Unused proportion can be transferred to surviving spouse
What is Quick Succession Relief and give the formula
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)
Increase in estate= (full estate - lifetime tax)/full estate
What is taper relief? How do you treat CLT in death tax
Given if lifetime tax paid more than 3 years before death. Calc after tax charged at 40%
Over 3-4 years 80%
Over 4-5 years 60%
Over 5-6 years 40%
Over 6-7 years 20%
Add another line reducing reducing tax by lifetime tax
What is fall in value relief
If value of gift falls follow these rules:
Still owned= MV at date of gift - MV date of death
Sold by Donee= MV at date of gift - MV date of death
Give dates for life and death tax
Lifetime- if made within first half (apr-oct) you have till 30 April of next year
If made in second half (oct-apr) you have 6 months from gift
Death- PET/CLT due 6 months after end of death. Trustee pays for CLT
Death estate- earlier of 6 months from end of death and delivery of account of estate assets to HMRC
