Inheritance Tax And Administration Flashcards
Describe the tax year for Inheritance Tax (IHT) in the UK.
The tax year for Inheritance Tax (IHT) runs from 6 April one year to 5 April the following year.
What is the lifetime rate of Inheritance Tax (IHT)?
The lifetime rate of Inheritance Tax (IHT) is 20%.
How is the death rate for Inheritance Tax (IHT) defined?
The death rate for Inheritance Tax (IHT) is defined as 40%, which applies to the value of an estate above the nil rate band at the time of death.
Explain the conditions under which a Potentially Exempt Transfer becomes chargeable to IHT.
A Potentially Exempt Transfer becomes chargeable to IHT if the transferor dies within seven years of making the transfer.
Define Lifetime Chargeable Transfers (LCT) and their tax implications.
Lifetime Chargeable Transfers (LCT) are lifetime transfers of value that are immediately chargeable to IHT at the lifetime rate, and they are reassessed if the transferor dies within seven years.
What is the implication of selling property at an undervalue for IHT?
Selling property at an undervalue implies that the difference in value is considered a gift, which may be subject to IHT.
Define the basic nil rate band (NRB) in the context of inheritance tax.
The basic nil rate band (NRB) is £325,000, allowing individuals to make chargeable transfers up to this amount at a rate of 0%, meaning no tax is due.
Explain the residence nil rate band (RNRB).
The residence nil rate band (RNRB) is an additional nil rate band of £175,000 for individuals who leave their family home to a direct descendant upon death.
How can a surviving spouse benefit from the nil rate bands?
A surviving spouse can inherit the unused portions of both the basic nil rate band (NRB) and the residence nil rate band (RNRB) from their deceased partner.
Describe the tax treatment of Lifetime Chargeable Transfers (LCT) made into a trust after 22 March 2006.
“An LCT is a chargeable transfer when made, with IHT payable at a lifetime rate of “ 20%. If the transferor survives 7 years after the LCT
When is the TNRB available
Only after the surviving spouse dies
How can the TNRB be claimed from multiple spouses
Individuals who have survived more than one spouse can claim the TNRB in respect of all of them, subject to a cap of 100% of a full nil rate band (max £325K)
What happens if the husband dies and wife remarries and then subsequently dies. Can the new husband’s estate claim TNRB from the first husband?
Yes, but it will be claimed from the wife’s estate who would have been entitled to the TNRB but didn’t claim it
When must a claim for TNRB be made
Within two years of the end of the month of death
What are the conditions to qualify for RNRB
The death estate included a ‘qualifying residential interest’ (‘QRI’) and The QRI was ‘closely inherited’ by a ‘direct descendent’
What happens if the deceaseds share or interest is less than £175k
The RNRB is called at the value of the deceased’s interest in the property (e.g if property costs 150k RNRB will be capped at £150k)
What happens to the RNRB if an estate’s net value (value of assets minus debts but before exemptions appply) is greater than £2 million
The reduction in the RNRB is £1 for every £2 (divide excess above 2 million by 2 and deduct that figure from the RNRB)
When is there no RNRB available
for net estates worth £2,700,000 or more
What happens where the deceased had more than one
residential property interest in their estate at death
The PRs must nominate one of them to qualify for RNRB
What does RNRB not apply to
rental investment properties in which the deceased never lived.
When will a child not closely inherit the property
When they have a contingent interest (e.g gift is contingent on them reaching 25 and they are currently 15) unless will specified otherwise
Who qualifies as a direct descendant
1) The deceased’s children, grandchildren, great grandchildren and other lineal descendants,
- Spouse or civil partner of anyone included in 1) above,
- Widow, widower or surviving civil partner of anyone included in 1) above who has pre-deceased the deceased, provided the survivor does not re-marry or enter a new civil partnership before the deceased dies.
Do step children qualify as direct descendants
Yes, if their parent was married to the deceased
Can you transfer unused RNRB to a surviving spouse
Yes, provided surviving spouse leaves it to a direct descendant