Inheritance Tax: Death Estate And Valuation

Question 1

What principle applies when valuing a part transfer of an asset for IHT purposes?

Answer 1

Diminution of value principle

Value of estate before gift - X
Value of estate after gift - (X)
Diminution in value - X

Question 2

How are shares listed on the stock exchange (quoted shares) valued for IHT purposes?

Answer 2

Valued at the lower of:
Quarter up rule:
Lower quoted price+1/4(higher-lower)

Average of lowest/highest marked bargains

Question 3

What do the related property rules prevent people from doing?

Answer 3

Splitting up their assets into cheaper individual items to reduce overall IHT payable

Question 4

What is included as related property?

Answer 4

Property included in spouse’s estate

Property transferred to charity/political party in the last 5 years

Question 5

What is the formula for valuing a related property transfer?

Answer 5

Value of whole property
X
Transferors value(TV)/
TV + Value of related property

Use higher of formula answer and Transferors value in IHT calc

Question 6

How do you value value shares under the related party rules for IHT purposes?

Answer 6

Value of whole shareholding
X
Transferors no. of shares/
Total related shareholding

Question 7

How does diminution of value and related property rules work together?

Answer 7

If a transferor is transferring part of an asset which has a related property:
Work out the value of the transfer with the related property formula before transfer then
Do the same calculation post transfer to calculate the diminution in value to be used as the transfer amount for IHT

Question 8

What is the special rule relating to a transfer of jointly owned property?

Answer 8

The transfer will receive a discount of value between 5/15% as long as it is not related property

Question 9

How are unit trusts valued?

Answer 9

At their bid price (lowest price)

Question 10

How are life assurance policies valued for:
An individuals own life?
A policy held in trust?
Someone else’s life?

Answer 10

An individuals own life - proceeds
A policy held in trust - proceeds exempt
Someone else’s life - Market value

Question 11

What is included in the death estate?

What costs are allowed to be offset?

Answer 11

All assets owned by deceased
Less:
debts - e.g credit cards/taxes
funeral expenses
(Debts must be unpaid for commercial reasons - not to gain tax advantage)
(Gambling debts have to be legally enforceable)

Question 12

What is the special rule for mortgage debt and similar specific unpaid costs?

Answer 12

Debt is primarily deductible from property mortgage relates to or other specific cost relates to
(Could in theory cap the RNRB claim)

Question 13

What happens when someone dies leaving unused nil rate band (NRB) and resident nil rate band(RNRB)?

Answer 13

The PERCENTAGE remaining transfers to their spouse to increase the band at the band rate in the relevant year when the spouse dies
No Spouse=loss of unused bands 
#ifyoulikeitthenyoushouldhaveputaringonit

Question 14

When the NRB/RNRB is transferred and the transferee ultimately dies, the personal representatives need to make a claim for the unused band by when?

Answer 14

The later of:
2 years from the end of the month of the death of the transferee
3 months from date personal representatives act for transferee

Question 15

What is the resident nil rate band
What is the figure for 2021/22
When did it start?

Answer 15

Additional relief on residential property on the death estate
17/18 - £100k
18/19 - £125k
19/20 - 150k
20/21 - 175k
21/22 - 175k
06/04/17

Question 16

What are the rules to receive the Residence nile rate band (RNRB)?

What main residence and period restrictions apply?

Answer 16

Property should be left to direct descendant of yourself or spouse

No main residence or minimum period restrictions apply

Question 17

What is the Residence nil rate band (RNRB) limited to?

Answer 17

The lower of:
net property value
The available band (175k TY 21/22)
Only available on the death tax

Question 18

What is Residence nil rate band(RNRB) tapering and how does it work?

Answer 18

The taper reduces the RNRB available by £1 for every £2 over 2 million worth of death estate
Death estate value used:
AFTER deducting debts/funeral expenses
BEFORE reliefs (e.g spouse relief, BPR)

Question 19

What must the transferee have done in order to receive the residence nil rate band transfer regarding the transferors property?
Does the RNRB have to be used against this property?

Answer 19

They must have lived in it at some stage

No, after the above is satisfied they can use it against any residence they own as there is no main residence or minimum period restrictions

Question 20

If the first spouse dies before the introduction of the residence nil rate band (RNRB) on 06/04/17 is there an RNRB available to transfer?

Answer 20

Yes, and as it could not be used at the time, 100% is transferred as deemed fully unused and can then be used to give the transferee 200% relief subject to
Tapering on the first estate which would have reduced the RNRB if it had existed!

Question 21

What 2 rules need to be satisfied to enable quick succession relief?

Answer 21

Property acquired within 5 years of death
There was a charge on the first transfer

The asset does not need to be held at death

Question 22

What is the formula for quick succession relief?

Answer 22

Tax on first transfer
              X
Increase in transferees estate/
Diminution in transferors estate
               X
Relevant percentage

Question 23

How do you calculate the relevant percentage for quick succession relief (QSR)?

Answer 23

Years between transfers:
0-1 - 100% relief
1-2 - 80% relief
2-3 - 60% relief
3-4 - 40% relief
4-5 - 20% relief

Question 24

if quick succession relief is available and the first transfer was the entire estate,
What is the
Increase in the transferees estate?
Diminution of the transferors estate?

Answer 24

Increase in the transferees estate
Amount received after tax

Diminution of the transferors estate?
Chargeable estate prior to taxation

Question 25

Quick succession relief on a specific legacy:

What is the key assumption in the exam?

Answer 25

Transferee does not bear the tax so therefore increase in transferees estate is the value of the legacy
The diminution in the transferors estate is the value of the legacy plus the tax on that legacy

Question 26

What is the formula for quick succession relief on a legacy when you are not given the tax on the specific legacy

Answer 26

Net first transfer
X
Tax paid on first estate/ (Known as the
Gross first estate estate rate)
X
Relevant %

Question 27

Who is responsible for paying the death tax?

Answer 27

The personal representatives

Question 28

What is the donation relief IHT and how is it obtained?

How is the net chargeable estate calculated when looking at donation relief?

Answer 28

IHT on the death estate is charged at 36% if 10% of the NET CHARGEABLE ESTATE is left to charity

Net chargeable estate =
Value of estate after all available relief
+
The exempt donation and the RNRB