Inheritance Tax: Lifetime Flashcards
What is a lifetime chargeable transfer?
A transfer into a trust during the deceased’s lifetime whereby 20% IHT is payable. If the deceased dies within 7 years of making the LCT, the LCT is reassessed on death.
Which exemptions / relief apply both on death and to lifetime transfers?
- Spouse exemption
- Charity exemption
- APR
- BPR
How does BPR apply to lifetime transfers?
The Qualifying business asset (or replacement) must still qualify for BPR in the hands of the transferee at the date of death of the transferor / transferee. It qualifies for BPR when the transferor or transferee dies.
* No minimum ownership requirement of 2 years.
How does APR apply to lifetime transfers?
Asset or replacement must be owned by the transferee at the time of death and qualifies when transferor or transferee dies.
No minimum ownership requirements.
What are the exemptions and reliefs applicable to lifetime transfers?
- Annual Exemption
- Marriage exemption
- Normal expenditure out of income
- Small gifts
- Family maintenance exemption
How does annual exemption work?
It is £3000 which can be used each tax year free of IHT.
* Applies chronologically to PETs and LCTs when made
* Once the £3000 in a tax year is used in full, the transferor can look back to the previous tax year and use unused AE (max £6000).
What is the family maintenance exemption?
The family maintenance exemption means that the following maintenance payments are free of IHT:
* made to spouse (or former spouse as part of divorce settlement);
* minor child of either party of marriage for maintenance, education or training (or if over 18 + in full time education or training);
* Dependent relative to make reasonable provision for their care.
Best used where spouse exemption does not apply.
What is the small gifts allowance and when does it apply?
Allows unlimited gifts of £250 (per donee) to be made free of IHT. Cannot be combined with the annual exemption for use on same donee but can be used for separate donees.
What is the marriage exemption and when does it apply?
A gift given in consideration of marriage to the bride / groom is exempt up to (per donor):
* £5000 if made by parent of party;
* £2500 if made by one spouse to the other;
* £2500 if made by remote ancestor (grandparent or great grandparent);
* £1000 by anyone else
Note: marriage exemption and spousal exemption can be claimed in relation to the same gift.
What is normal expenditure out of income and when can it be used?
Where transfers are made from the donor’s income (not capital) as part of a normal or settled pattern of giving which does not affect the donor’s standard of living. There is no upper limit to the exemption.
