Inheritance Tax 2 Flashcards
What is the nil rate band?
£325,000
On which 3 occasions can IHT be charged?
- On a lifetime transfers
- On the same lifetime transfer if transferor dies within 7 years
- On testator’s death
What are the 2 types of lifetime transfers?
- Chargeable lifetime transfers (CLTs)
- Potentially exempt transfers (PETs)
What is the loss to donor principle?
A gift is valued by how much it reduces donor’s estate
Which six types of gifts are exempt?
- Gifts to spouse
- Gifts to charities in UK or EEA
- Small gifts of up to £250 (all or nothing)
- Gifts on marriage
- Normal expenditure out of income
- £3,000 annual exemption
What is a PET?
A potentially exempt transfer is a gift by one individual to another individual
What happens if a donor dies within 7 years of making a PET?
The PET becomes a chargeable transfer and tax will be payable by the recipient of the gift
Are gifts to discretionary and interest in possession trusts CLT?
Yes, these trusts are CLTs and immediately chargeable to tax
Are gifts to bare trusts CLTs or PETs?
In bare trusts, beneficiaries decided when assets are distributed. Payments to bare trusts are PETs
Are gifts to companies PETs or CLTs?
CLT
Can the value of a CLT be reduced?
Yes, by the annual exemption
When will tax be owed on CLT?
When the gift exceeds the NRB of £325,000
What is the tax rate applicable to CLTs?
If the trustee pays, 20%
If the donor pays, 25%
What is the taper relief if there are 0-3 years between the date of the gift and the date of death?
0%
What is the taper relief if there are 3-4 years between the date of the gift and the date of death?
20%
What is the taper relief if there are 4-5 years between the date of the gift and the date of death?
40%
What is the taper relief if there are 5-6 years between the date of the gift and the date of death?
60%
What is the taper relief if there are 6-7 years between the date of the gift and the date of death?
80%
What are the three tax reliefs for lifetime transfers?
- 100% business relief
- 50% business relief
- Agricultural relief
Is business relief give before or after the annual exemption?
Before
Which assets will qualify for 100% business relief?
- Sale of sole-trade business or partnership interest
- Shares in an unlisted trading company (private Ltd company with shares not on stock market)
Which assets will qualify for 50% business relief?
- 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
Which two conditions must be satisfied for business relief to apply?
- Business must be trading
- Donor must’ve owned property for at least 2 years before transfer
Does business relief apply to shares in overseas trading company?
Yes
What is agricultural relief?
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
What is the relief applied in agricultural relief?
100%
Can agricultural relief be used in addition to business relief?
Yes
