Inheritance tax Flashcards
What are the charges on a gift into discretionary trust
Chargeable Lifetime transfer - 20% on excess above nil rate band
Periodic Charge - on 10th anniversary, 6% on excess above nil rate band
Exit charge - paid when money is distributed to beneficiaries. Rate paid is based on the effective rate of the last periodic charge with a proportionate deduction based on number of complete quarters since outset or last 10 year anniversary
How do you calculate the Chargeable Lifetime Transfer
Add the value of the gift to any other Chargeable Lifetime transfers made in the last 7 years
Deduct the value of the nil rate band at that time (can be enhanced by transferred nil rate band)
X 20%
How do you calculate the Periodic Charge
Establish the available nil rate band - the current nil rate band minus any chargeable lifetime transfers made within 7 years of the trust being created
Obtain the value of the trust plus any distributions made to the beneficiaries in the last 10 years
Tax the excess at 6%
How do you calculate the Exit Charge
Establish the effective rate of tax suffered by the trust at outset or last 10 year periodic charge by dividing the tax paid by the value
Establish the proportionate deduction by calculating the number of complete quarters by 40 (number of quarters in a 10 year period)
Calculation is - Amount distributed X effective rate of tax suffered X N/40 = tax to be paid
(N = completed quarters)
It is only paid in the first 10 years if lifetime charge was paid, unless on death a failed PET causes the Nil rate band to have been reduced. Also if trust was created post death and a transferable nil rate band was used.
https://www.canadalife.co.uk/adviser/ican-academy/briefing-notes/estate-planning-trusts/periodic-and-exit-charges-briefing-note
What are the main exemptions
All gift transfers between UK domiciled married couples
all gifts up to £3k per tax year - can be carried forward 1 year max
Gifts up to £250 per recipient
Gifts to non UK domiciled spouse up to max £325k
Gifts that are part of normal expenditure out of income
Gifts on marriage £5k from each parent, £2500 from each grandparent, £1k from anyone else
Gifts to charities
Family maintenance
Special relief on business property, agricultural property 50% or 100% may be exempt
What is the maximum value of an individuals estate allowed before the main residence nil rate band is reduced
£2 million (after liabilities but before reliefs and exemptions) reduced by £1 for every £2 over threshold
Can the main residence nil rate band be transferred
Yes
what percentage of the estate needs to be left to charity for the reduced rate of tax to be applied
10%
How do you calculate quick succession Relief
Gross estate -tax paid X Gross estate X amount of tax paid = XX
XX multiplied by the percentage available depending on the years since the first death
Deduct this amount from the IHT liability due on 2nd death
When does quick succession relief not apply
When the transfer was exempt
When the transfer was chargeable but no tax paid because it was below the threshold
more than 5 years before the 2nd death
What is the main residence bil rate band for 2018/2019
£125,000
What was the nil rate band for 2017/2018
£100,000
What rate will the nil rate residence band increase by
CPI
How many years does someone have to be UK resident to be deemed domiciled
15/20 years
How long before a UK born person with a UK domicile of origin returns to the UK becoming a UK resident after being domiciled in another country - becomes domiciled for income tax and cgt
Immediately
