Inheritance Tax: Death

Question 1

What is included in the taxable estate?

Answer 1

1. Jointly held property;
2. Donationes mortis causa;
3. GROBs;
4. Statutory nominations;
5. Interests in possession in a trust (either created pre 22 Mar 2006 or post 22 Mar 2006 by will).

Question 2

Which assets are excluded from the taxable estate?

Answer 2

• Discretionary pension schemes
• Life assurance policy written in trust
• Reaminder interest in life interest trust where the life tenant is still alive.

Question 3

What debts are deductible for the purpose of inheritance tax?

Answer 3

Debts owed by the deceased at the date of death (i.e rent arrears, overdraft, credit card bills) and funeral expenses.

Question 4

What is applied to assets owned as tenants in common (not with a spouse or cp)?

Answer 4

10-15% discount to reflect the fact that the share will be harder to sell.

Question 5

What are the reliefs and exemptions which are available on death?

Answer 5

1. Spouse exemption;
2. Charity exemption;
3. Business Property Relief;
4. Agricultural Property Relief;
5. Woodlands Relief;
6. Quick Succession Relief.

Question 6

What is spouse exemption and when it is available?

Answer 6

Any gift made by will, intestacy or by survivorship to a spouse or civil partner is subject to 0% IHT. The gift may be conditional provided the condition can be satisfied within 12 months of the death.

Question 7

What is charity exemption and when it is available?

Answer 7

Where a gift is made to charity, exclusively for the purpose of charity, the whole gift is subject to 0% inheritance tax. Where the amount given to charity constitutes 10% or more of the net value of the estate, the death IHT rate is 36% instead of 40%.

Question 8

What is BPR and which level of relief applies to which asset?

Answer 8

BPR applies to 4 categories of qualifying business property owned in the qualifying period:
1. Shares in private companies (100%)
2. Controlling shares i.e 51% in public companies (50%)
3. Interest as a sole trader or partnership (100%);
4. Assets used for business but owned by the deceased (50%)

NOT for businesses which consists wholly / mainly of dealing in securities, stocks, shares, land or buildings; or for making or holding of investments.

Question 9

What is the qualifying period of ownership for BPR?

Answer 9

2 years continuously prior to the death EXCEPT:
* qualifying replacement asset;
* if inherited, deemed to be acquired on date of inheritance;
* if inherited from spouse, deemed to be acquired on date spouse acquired it.

Question 10

When does APR apply?

Answer 10

Applies to agricultural land and buildings used for the purpose of agricultural activity, i.e farmland, farmhouses and cottages.

Question 11

What is the qualifying period for APR?

Answer 11

• Where the deceased was the occupier, 2 years immediately preceding transfer
• Where owned and occupied by them or another, 7 years before transfer

UNLESS
* replacement asset, deemed acquired on original date;
* inherited, deemed acquired on date of death
* inherited from spouse, deemed acquired when originally received by spouse.

Question 12

What are the two rates of relief for APR and when do they apply?

Answer 12

100%: transferor was owner / occupier or entitled to vacant possession within 12 mths + let on tennacy beginning on /after 1 Sept 1995

50%: let before 1 Sept 1995.

Question 13

When does woodlands relief apply?

Answer 13

Where woodlands is gifted (not land). 5 year qualifying period unless deceased themselves inherited the woodlands (then no qualifying period).

Deferral of inheritance tax until woodlnd gifted or sold.

APR / BPR preferable to this.

Question 14

When does quick succession relief apply and how?

Answer 14

If the deceased died within 5 years of someone from whom they inherited and which were subject to IHT on original transfer.

Tax paid previously credited against IHT charge. If death occurs within 1 year of previous IHT charge = 100% relief.

Relied reduces each year after death (only 20% for 4-5 years after o/g charge).

Question 15

When will an estate be a low value excepted estate?

Answer 15

When the gross value of the estate is less than NRB and TNRB.

Question 16

When will an estate be an exempted estate?

Answer 16

Where the gross value of the estate is below £3m but debts & spouse/charity exemption takes net value below NRB+TNRB.

Question 17

Which disqualifying factors prohibit an estate from being excepted from IHT?

Answer 17

• Deceased made GROB which subsists at death (or reservation ended in 7 years prior to death + transfer not exempt);
• Estate includes more than 1 trust interest and it is not passing to the spouse;
• Estate includes single trust interest worth more than £250k and not passing to spouse;
• Foreign assets worth £100k or more
• Value of specified transfers is over £250k
• Claim for RNRB.

Question 18

What are the PRs duties on death in relation to IHT?

Answer 18

1. Deliver the estate accounts to HMRC and pay the IHT = allows HMRC to issue grant.
2. Pay IHT within 6 months from the end of the month in which death occurred (otherwise interest starts to accrue) and submit estate accounts within 12 months of this, otherwise have to justify.

Question 19

When can IHT be paid in instalments?

Answer 19

Can be paid in 10 equal instalments for the following assets:

1. Land and buildings;
2. Public company shares / securities giving deceased control
3. Private company shares where payment cannot be made without undue hardship;
4. Farms or interest in farming business
5. Business or interest in business
6. timber

Question 20

Which forms are relevant to the payment of IHT on the death estate?

Answer 20

IHT400: estate accounts form, must be completed unless estate excepted.
IHT421: probate summary should be completed
IHT205: estate excepted
Form C4: if PRs discover that the information provided at the date of death was wrong.

Question 21

How can initial payments of IHT be funded by the PRs?

Answer 21

From beneficiaries or direct payment scheme.