Inheritance Tax

Question 1

Who is liable for inheritance tax

Answer 1

Those who receive property are concurrently liable with the PR but PR usually pays

Question 2

When is IHT due?

Answer 2

6 months after end of month of death

Question 3

How to calculate IHT on a transfer on death

Answer 3

1 - identify transfer
2- find value of transfer (debts, market value, impact of death on value)
3- reliefs and exemptions (spouse/CP, charity and business and agriculture relief)
4- calculate tax at appropriate rate

Question 4

Requirements to qualify for business and agriculture relief on IHT

Answer 4

Owned for 2 years immediately before death
100% on business, interest in business and unquoted shares
50% on quotes shares giving control, buildings, land and machinery used in business

Question 5

Rates at which IHT is calculated

Answer 5

0% for £3250,000
40% for remainder

Consider any chargeable transfers in last 7 years and subtract from 325,000

Residence nil rate band

Question 6

What is residence nil rate band for IHT

Answer 6

A dwelling house which deceased lived in at any time and inherited by lineal descendant or current spouse/CP of links dependant
Up to £175,000
Estate net value over £2m then reduce residence nil rate band by £1 for every £2 over £2m

Question 7

Steps to calculate IHT for potentially exempt transfer

Answer 7

1. Any gift to an individual into a disabled trust which reduces value of estate (not company) (not for education and maintenance of dependant).
2. Value of transfer
   (Market value, related property valuation rule)
3. Apply exemptions and reliefs (spouse/CP, charity, business and agriculture, marriage consideration, small gifts, annual exemption, normal expenditure)
4. Any remaining value is PET, chargeable only if they die within 7 years

Question 8

What is the related property valuation rule for PET

Answer 8

The value of the item is the portion of the value of the pair even if worth less in their own

Question 9

Exemptions and reliefs for PETs

Answer 9

Spouse/ CP, charity, business and agriculture relief
Marriage consideration (£5000 from parent, £2500 from remote ancestor, £1000 from anyone else)
Normal expenditure out of income where you can still maintain your normal standard of life
Annual exemption of £3000, can carry over for one year only
Small gifts of £250 in one year

Question 10

Steps to calculate IHT on lifetime chargeable transfers

Answer 10

1. Identify transfer - any lifetime transfer that is not a PET, not a disabled trust eg transfer to trust or company after 22.03.06)
2. Identify value
3. Reliefs/exemptions (no small gift relief)
4. 0% of £325,000 and 20% on rest

Question 11

Effect of death on LCT

Answer 11

If die within 7 years recalculate

Tapering relief 
3-4 - 80%
4-5 - 60%
5-6 - 40%
6-7 -20%

Calculate nil rate band

Give credit for IHT paid at time

Question 12

Effect of death on PET

Answer 12

Tapering relief

Recalculate nil rate band

Chargeable if dies within 7 years