INHERITANCE TAX BABY

Question 1

4 step approach to IHT on death estate outline

Answer 1

1) identify transfer of value (the death)
2) find value transferred (deceased’s estate)
3) apply exemptions and reliefs
4) calculate tax at appropriate rate

Question 2

STEP 2 - What does the deceased’s estate encompass when finding the value transferred

Answer 2

everything the deceased was beneficially entitled to on death so:

• everything passing thru will/intestacy
• interest in joint property - incl for tax even tho goes thru survivorship
• some trust interests
• property subject to reservation eg house that has been gifted to relative in their name, but deceased kept living in rent free - still taxed as benefitted

Question 3

STEP 2 - how are assets valued? what is done after the deceased’s estate has been valued?

Answer 3

value assets at open market price eg get a valuer in for real estate n shares
then deduct debts and expenses for final value transferred

Question 4

STEP 3 - what are the main 4 exemptions for IHT

Answer 4

• spouse/CP fully exempt from IHT
• charity donations fully exempt
• Business Property Relief - no/reduced IHT on certain biz interests
• Agricultural Property Relief

Question 5

how does business property relief work

Answer 5

• 100% relief on tax for unincorporated biz and unlisted company shares
• 50% potential relief on listed company shares that give voting control, unlikely as LTDs worth £££
• 2 year ownership requirement - must have owned asset for 2 years+ prior to death

Question 6

How does the nil rate band work

Answer 6

0% rate below 325k, 40% above

Question 7

what is the special charitable rate

Answer 7

36% tax if 10% of net estate donated to charity

Question 8

What is the transferable nil rate band

Answer 8

if 1 spouse dies w/o using their NRB, it transfers over to surviving spouse. Thus, if husband dies leaves wife everything, when wife dies she gets double bubble NRB so 650k at 0%. if partially used, eg 50% of 325k, other half goes to wife.

Question 9

what is the residence nil rate band

Answer 9

If property that was the deceased’s residence gets “closely inherited” (to (grand)child)), 175k of the gaff is additionally available to get taxed at 0%. ALSO TRANSFERABLE

Question 10

What must happen before the estate is distributed?

Answer 10

tax must be paid. sometimes a will specifies which assets pay tax, if intestacy its applied proportionally so it doesnt all fall on 1 person/asset