Inheritance Tax Flashcards
For IHT calculations When is an individual Deemed Domicile?
If they have been resident in UK for 15 out of last 20yrs.
(1) What assets are liable to IHT for;
(A) A UK Domicile / Deemed Domicile person?
(B) A non UK Domicile person ?
(2) When are Government Securities liable for IHT regardless of Domicile?
(1A) Worldwide assets even if not resident
(1B) UK assets only
(2) When UK resident
What two situations cause the reduction in value to an estate to be greater than the market value of a gift?
(1) When items sold together are worth more than when separated (pair of antique vases)
(2) When selling shares changes a controlling interest to a minority interest, known as related property.
What is meant by the term Gratuitous Intent, in relation to IHT and is IHT chargeable if an Estate suffers a loss from a deliberate omission such as failure to collect a debt?
(1) There is no IHT on commercial transactions because there is no loss to the Estate, including bad bargains, although commercial transactions between connected people are looked at carefully, the market value can be used instead of the actual proceeds.
(2) Yes
What three things should an administrator/ executor consider when valuing an estate on death?
(1) Value of the estate including the share of those jointly held and life policy proceeds not in trust.
(2) Reviewing transfers made before death
(3) Deducting debts, outstanding taxes and funeral expenses
For the IHT Nil Rate Band
(1) When is it fixed to?
(2) What element of the NRB can be transferred to a spouse and on whose death?
(3) What is the maximum the NRB can be increased by when transferring to a spouses NRB?
(1) 5/4/2021
(2) Any unused proportion on second death from 2007 but doesn’t matter when the 1st death occurred
(3) 100%
What are the implications for IHT Transfers between spouses?
(1) Do they need to be living together at the time of transfer?
(2) How much is the exemption limited to if a spouse is not UK domicile? How can this be avoided and what are the implications?
(1) No unlike CGT
(2) When transferring, exemption is limited to a lifetime total of £325,000, unless they elect to be treated as UK domicile for IHT,but this means being taxed in worldwide property.
IHT Residents Nil Rate Band (RNRB)
(1) Which beneficiaries can it apply to ?
(2) How much is the current RNRB and is it tapered?
(3) You cannot claim more than……after …….
(4) It can only be claimed for people dying after …. although can be transferred to ……… even if ….must be claimed within ….. of ….
(5) It is protected if ….. after….when…….are passed to direct descendants on death.
(6) It applies when the home is inherited but what if there is more than home?
(7) Does buy to let qualify?
(8) Which Trust can it be left to
(1) Direct descendants children, Step, Adopted, Foster.
(2) £150,000, yes it is Tapered (in tax table)
(3) The value of home / after deducting any outstanding mortgage.
(4) 2017 / a surviving spouse / first spouse died before this date/ 2 years / 2nd death
(5) Downsize or sell / 7/2015 / assets of equivalent value
(6) You can nominate which one it applies to,
(7) No
(8) A Trust with an immediate post death interest or trust to disabled person/minor
If two people die in circumstances where it cannot be established who died first for IHT purposes what happens?
It is deemed they died in the same instant to avoid a double charge.
What are the four types of IHT lifetime transfers?
- Exempt
- PET
- CLT at 20% if 7 years cumulation over NRB
- Gift with reservation
Which nine lifetime transfers are exempt and name the one additional exemption that only applies on death?
(1) To spouse
(2) Annual Exemption £3k, carried forward 1 year (Max £6k), Lifetime gifts only
(3) Small gifts £250 per donee, any number can be made by the donor to different recipients, can not be part of a larger gift, cannot be given to a trust
(4) Normal habitual expenditure from income (as long as retain sufficient income to maintain standard of living) for example IHT life policy in trust
(5) Gifts on marriage, can be used with annual exemption
(6) Charities
(7) For National Benefit / Political Parties
(8) Gifts for maintenance of a dependent relative and for education of a child to 18 / end of full time education.
(9) If you die on active service
(1) When is a lifetime transfer for IHT treated as a PET?
(2) Does it need to be reported at time of transfer
(3) How is tax calculated on PET’s
(4) Does Taper relief apply to the tax or the transfer
(5) Is relief available if the value of asset fallen since date of transfer
(6) Who is responsible for paying the tax on a PET?
(1) When made to; Individual / Bare Trust / Disabled Trust
(2) No
(3) On death all chargeable transfers in last 7 years added together, any within NRB not chargeable
(4) Tax
(5) Yes
(6) The recipient is responsible for paying the tax
* It is the NRB at time of death that is applied not at the time the gift is made.
* If assets sold before donor’s death market value at date of sale applies
* If value dropped between gift and donor’s death lower value used
Explain the IHT Cumulation Principle
Chargeable transfers over last 7 years are added together in date order and tax is due once NRB is exceeded.
Explain the 14 year rule
When calculating IHT on death, you need to off set the earliest PET against the NRB but cannot use any proportion that was off set against a CLT In the 7 years before the PET
IHT Quick Succession Relief
(1) When can it be used?
(2) How is it applied
(3) What is the formula?
(1) Within 5 years of 1st death
(2) A deduction can be made, using the tax tables and this calculation
(3) (Net Estate/Gross) x Tax Already Paid x tax table %
* Property the deceased received does not need to be included in the new estate for the relief to be available
