Inheritance Tax Flashcards
What are the two types of Lifetime gifts?
Potentially exempt transfers
Chargeable lifetime transfers
What is chargeable property?
All property to which a person is beneficially entitled is deemed to form part of their estate.
EXCLUSION: property situated overseas and the individual is NON-UK domicile
What is chargeable person and what is not?
All individuals
If the individual is UK domicile they will be taxed on their worldwide income
If the individual is NON-UK domicile they will be taxed on their UK assets only
A married couple (and registered civil partnerships) is NOT a chargeable person for IHT purposes because each spouse is taxed separately.
What are the exemptions available for lifetime gifts only?
Small gift exemption: If the limits are exceeded, everything is exempt
▪ An outright gift of no more than £250
▪ Per recipient
▪ Per tax year
Marriage exemption
▪ £5,000 by a parent
▪ £2,500 by a grandparent or great grandparent etc…
▪ £1,000 by anyone else
Normal expenditure out of income ▪ Christmas presents ▪ Birthday presents ▪ School fees (There has to be a regular pattern and paid out of a person’s normal expenditure)
The annual exemption (AE): Applied last after other exemptions
▪ The annual exemption:
✓ £3,000 per tax year
✓ Used against PET- even if PET never becomes chargeable
✓ Is applied chronologically to the first gift in the tax year, then (if there is any remaining) the second gift and so on
▪ Any unused annual exemption:
✓ May be carried forward to the next year only
✓ Can only be used after the current year’s annual exemption
▪ If other exemptions are available they are given before the annual exemption
Between who are lifetime gifts exempt?
Transfer between husband and wife
What is the nil rate band?
£325k. The nil rate band (NRB) is a tax free amount under IHT. When a chargeable gift (CLTs only during lifetime) is made, the availability of the NRB has to be considered according to the tax year of the gift.
The amount of the NRB available is first reduced by any Gross Chargeable Transfers which have occurred within 7 years before the new chargeable gift was made.
What are the different conditions for NRB for lifetime gifts (both lifetime and death tax) and for Death estate
▪ For lifetime gifts- Lifetime tax
->Use NRB in tax year of gift- GCT in 7 years pre gift
▪ For lifetime gifts- Death tax
- >Use NRB in tax year of death- GCT in 7 years pre gift i. e., the amount available is the last 7 years OF THE GIFT
▪ For death estate
- >Use NRB in tax year of death - >Calculate the available residence nil rate bank
What is the normal due date of payment of lifetime IHT?
This depends on the date of the gift
Date of CLT–> Due date of payment
1▪ 6th April to 30th September—> 30th April in the following year.
2▪ 1st October to 5th April—> 6 months after THE END OF THE MONTH of the CLT
1) e.g. if gift was made on 5th May 2019, it is payable on the 30th April 2020
2) e.g. if gift was made on 17th Dec 2019, it is payable on the 30th June 2020
What is the due date of payment for IHT on lifetime gifts as a result of death?
6 months AFTER the end of the month of death. *Always paid by donee
E.g. Death on 27th November 2019
Due on the 31 May 2020
What is residence nil rate band?
How is this applied
what doesn’t qualify for a nil rate band?
An additional nil rate band where a main residence is inherited on death by direct descendants (children and grandchildren).The residence nil rate band is £150,000.
Note that RNRB is applied to the entire estate, not just the main residence so the net value of the residence will be the market value less the outstanding mortage.
The residence nil rate band is only relevant where an individual dies on or after 6 April 2017, their estate exceeds the normal nil rate band of £325,000 and their estate includes a main residence. Any other type of property, such as a property which has been let out, does not qualify for the residence nil rate band.
What is the due date of payment for IHT on death estate?
6 months AFTER the end of the month of death. Paid by the executor
However, tax is required to be paid with delivery of accounts to HMRC, which may be earlier than due date
What does skipping a generation do?
✓ Gifting to grandchildren rather than children avoids a further IHT charge when their children die
✓ Such planning requires children to be independently wealthy so that they have no need for inheritance
How is NRB transferred between married couples and civil partners?
The proportion (%) of NRB not utilised at the time of a persons death can be transferred to their spouse. The percentage unused is multiplied to the surviving spouse’s NRB, not the dead one. The percentage is only applied to them at the death of the remaining spouse
How are specific legacy to a sibling for e.g. dealt with?
They are deducted in the NRB Q200- B
How does the transfer of unused RNRB work betweenspouses?
The RNRB was only available for deaths on or after 6 April 2017 so spouses who died before that date have 100% of their RNRB unused
