Inheritance Tax Flashcards
Small gifts exemption
lifetime gift by transferor are exempt if they are ;
<250
per recipient
per tax year
doesn’t apply to gifts into/out of trusts
cannot exempt part of a larger gift
Marriage/civil partnership exemption (wedding gifts)
5k parent
2.5k grandparent
2.5k party to the marriage or civil partnership
1k by anyone else
in consideration of marriage = marriage must take place
can exempt part of larger gift
Lifetime gift will be exempt if.. (normal)
-regular, habitual payment (e.g. school fees by grandparents)
-made out of income (i.e. not capital)
-does not impact the donor’s standard of living
Lifetime gift exempt both on gift and on death (3)
-Charitable donation = uk charities &unlimited
-Qualifying political party= unlimited, more than 2 MPs or 1 MP and over 150k votes in last general election
-Inter spouse exemption = between spouses, unlimited unless transferor uk domiciled and transferee non-uk domiciled (max would be NRB 325k - to get around this they could elect to be treated as uk domiciled)
What are the 3 types of lifetime transfers?
exempt transfers
potentially exempt transfer (PET)
chargeable lifetime transfer (CLT)
PET info
gift to another individual
at time PET is made = no IHT chargeable
calculate at time of gift, taking exemptions into account and value is frozen.
if donor lives 7 years = exempt
if donor dies within 7 years = becomes chargeable (taper relief available if over 3 years)
CLT info
transfer into trust
IHT is chargeable at the time the gift is made and at the time of death if within the 7 years
Calc lifetime tax process
1 - calc chargeable amount PET & CLT
2 - calc NRB available CLT
3 - calc tax at lifetime rate CLT (20% if trustees, 25% if settlor)
4 - calc gross chargeable transfer PET & CLT
5 - state due date CLT
Calc lifetime tax process (PET only)
1 - calc chargeable amount PET & CLT
4 - calc gross chargeable transfer PET & CLT
Lifetime gift exemptions (4)
Small gifts
Marriage exemption
Normal expenditure out of income
Annual exemption (3k - can carry forward 1 tax year)
APR - agricultural property relief (lifetime tax & on death)
automatic relief
relevant agricultural property
farmed by owner for 2 years
or
farmed by tenant 7 years
uk property
100%
BPR - business property relief (lifetime tax & on death)
automatic relief
relevant business property
held for a minimum of 2 years
anywhere in the world
50% quoted shares or L&B, P&M
100% unincorp business or unquoted shares
RNRB - resident nil rate band (death estate)
main residence
direct descendants
lower of;
175k
value of property net any repayment mortgage
unused RNRB can be transferred same as NRB, only on death estate. Can still use if gift was given during lifetime (gift with reservation)
Taper of RNRB i.e. property value above £2m
RNRB reduced by;
(value of estate -£2m) * 1/2
No RNRB available if property value is above £2,350,000
Quoted shares or securities
lower of;
-quarter up method (lowest + 1/4 * (highest-lowest) RANGE
-average of highest and lower bargains
Charity reduced rate
if over 10% of ‘baseline’ estate is left to charity
reduced rate of 36% rather than 40%
baseline = taxable estate + RNRB + charitable legacy
