Inheritance Tax 2

Question 1

What is the nil rate band?

Answer 1

£325,000

Question 2

On which 3 occasions can IHT be charged?

Answer 2

1. On a lifetime transfers
2. On the same lifetime transfer if transferor dies within 7 years
3. On testator’s death

Question 3

What are the 2 types of lifetime transfers?

Answer 3

1. Chargeable lifetime transfers (CLTs)
2. Potentially exempt transfers (PETs)

Question 4

What is the loss to donor principle?

Answer 4

A gift is valued by how much it reduces donor’s estate

Question 5

Which six types of gifts are exempt?

Answer 5

1. Gifts to spouse
2. Gifts to charities in UK or EEA
3. Small gifts of up to £250 (all or nothing)
4. Gifts on marriage
5. Normal expenditure out of income
6. £3,000 annual exemption

Question 6

What is a PET?

Answer 6

A potentially exempt transfer is a gift by one individual to another individual

Question 7

What happens if a donor dies within 7 years of making a PET?

Answer 7

The PET becomes a chargeable transfer and tax will be payable by the recipient of the gift

Question 8

Are gifts to discretionary and interest in possession trusts CLT?

Answer 8

Yes, these trusts are CLTs and immediately chargeable to tax

Question 9

Are gifts to bare trusts CLTs or PETs?

Answer 9

In bare trusts, beneficiaries decided when assets are distributed. Payments to bare trusts are PETs

Question 10

Are gifts to companies PETs or CLTs?

Answer 10

CLT

Question 11

Can the value of a CLT be reduced?

Answer 11

Yes, by the annual exemption

Question 12

When will tax be owed on CLT?

Answer 12

When the gift exceeds the NRB of £325,000

Question 13

What is the tax rate applicable to CLTs?

Answer 13

If the trustee pays, 20%
If the donor pays, 25%

Question 14

What is the taper relief if there are 0-3 years between the date of the gift and the date of death?

Answer 14

0%

Question 15

What is the taper relief if there are 3-4 years between the date of the gift and the date of death?

Answer 15

20%

Question 16

What is the taper relief if there are 4-5 years between the date of the gift and the date of death?

Answer 16

40%

Question 17

What is the taper relief if there are 5-6 years between the date of the gift and the date of death?

Answer 17

60%

Question 18

What is the taper relief if there are 6-7 years between the date of the gift and the date of death?

Answer 18

80%

Question 19

What are the three tax reliefs for lifetime transfers?

Answer 19

• 100% business relief
• 50% business relief
• Agricultural relief

Question 20

Is business relief give before or after the annual exemption?

Answer 20

Before

Question 21

Which assets will qualify for 100% business relief?

Answer 21

• Sale of sole-trade business or partnership interest
• Shares in an unlisted trading company (private Ltd company with shares not on stock market)

Question 22

Which assets will qualify for 50% business relief?

Answer 22

• Shares in a quoted trading company (Plc) that donor has more than 50% control of
• Land or buildings or plant and machinery owned by individual and used by partnership or company

Question 23

Which two conditions must be satisfied for business relief to apply?

Answer 23

1. Business must be trading
2. Donor must’ve owned property for at least 2 years before transfer

Question 24

Does business relief apply to shares in overseas trading company?

Answer 24

Yes

Question 25

What is agricultural relief?

Answer 25

100% relief if transferor occupied property for agricultural purposes at least 2 years prior to transfer OR was owned by transferor for at least 7 years but was occupied by someone else for agricultural purposes

Question 26

What is the relief applied in agricultural relief?

Answer 26

100%

Question 27

Can agricultural relief be used in addition to business relief?

Answer 27

Yes