Inheritance tax - reliefs and other aspects Flashcards
Business Property Relief - basic
Acronym: ROSE
R - relevant business property
O - ownership period of transferor
S - sale contract in place denies relief
E - excepted assets reduce amount of relief
Business Property Relief - allowable properties
Unincorporated business or an interest in a business (eg a share in a partnership) - 100%
Furnished holiday accommodation. There has to be substantial involvement by the owner (or agent) during the holiday lettings - 100%
Shares in an unquoted company - 100%
Securities in an unquoted company which the transferor controlled - 100%
Shares transferred from a controlling holding in a quoted company - 50%
Land, buildings, plant and machinery owned by the transferor and used for business purposed by either a partnership in which the transferor was a partner or a company of which the transferor had control immediately before the transfer - 50%
BPR - ownership period
Generally 2 years with the following exceptions
- Where the property transferred replaced other business property which together were owned for at least two years within five years prior to the transfer
- Where property passed on death from a spouse, ownership by the deceased spouse counts as ownership
- Where there are successive transfers of the same property, one of which was on death and the first transfer of property qualified for relief, the two year ownership requirement on the second transfer is deemed to have been satisfied.
BPR - sale contract in place
BPR does not apply where there is already a contract in place to ell the business property.
Look out for wording in shareholder agreements (eg not “must be sold” but rather “option to buy”)
BPR - excepted assets
BPR does not apply to the value of excepted assets held by a business
An excepted asset is one which was neither
- used wholly or mainly for the purposes of the business throughout the whole of the two year period prior to the transfer, nor
- is required at the time of the transfer for future use in the business.
Examples of excepted assets include large cash balances and land or shares held as investments.
Agricultural property relief - where can the property be?
APR applies to agricultural property situated in the UK, channel islands or Isle of Man and from 22 April 2009, agricultural property in the European Economic Area.
Agricultural Property Relief - rates
Property where the transferor had vacant possession immediately before the transfer or the right to obtain vacant possession within the next 12 months (extended to 24 by extra statutory concession) - 100%
Property which is let out under a tenancy granted on or after 1 September 1995 - 100%
Property let out under a tenancy granted before 1 September 1995 which has more than 12 months to run (extended to 24 month by extra statutory concession)
APR only applies to
The agricultural value of the land. However, if the transferor is carrying on a business, BPR will be available to cover any additional value (eg development value)
APR - occupation or ownership period
2 years for an owner-occupier
7 years for a landlord
APR - shares in agricultural companies
APR is also available on the transfer of shares in a company where the transferor has control of the company, to the extent that the company owns agricultural property.
BPR and APR - attributable liabilities
Where a loan is taken out on or after 6 April 2014 and is used to acquire or enhance business or agricultural property, the liability must be deducted FIRST before applying BPR or APR.
BPR and APR- transfers within 7 years before death of transferor
BPR and APR will NOT apply to death tax on a lifetime transfer if the transferee does not still own the property transferred to him at the date of death as relevant business property. Examples include where
- the transferee has sold the property before the death of the transferor (unless a replacement asset is acquired within 3 years)
- the transfer was of unquoted shares or securities, the shares became quoted and the transferee does not have control of the company.
Overseas aspects of IHT - Deemed UK domicile
An individual will be deemed to have UK domicile for IHT purposes in any of the following cases:
- The individual was domiciled in the UK under general law at any time in the three previous tax years
- the individual is a ‘formerly domiciled resident’ for the tax year.
- the individual was resident in the UK for at least 15 of the previous 20 years and including at least one of the four tax years ending with the current tax year.
‘Formerly domiciled resident’ definition
someone who:
was born in the UK with a UK domicile of origin
is resident in the current tax year and
was resident in the UK in at least one of the two tax
years prior to the current year
IHT - transfer from a UK Dom to a non dom spouse
only gifts up to the nil rate band are exempt. This is a cumulative lifetime total.
IHT - transfers between a non dom and non dom spouse
totally exempt
IHT - foreign aspect - location of assets
Land and buildings - where physically situated
Debt - where the debtor resides
Life policies - where the proceeds are payable
Registered shares and securities - where they are registered
Bank accounts - at the branch where the account is kept
Interest in a partnership - where the partnership business is carried on
Goodwill - where the business to which it is attached is carried on
Tangible property - at its physical location
IHT - deadlines for giving info to HMRC
CLT - Transferor - 12 months after end of month in which gift was made
PET - transferee - 12 months after end of month in which death occurred
Death estate - PRs - 12 months after end of month in which death occurred, or, if later, three months following the date they became PRs
IHT - appeal against notice of determination
within 30 days of service of notice
Payment of IHT and interest
CLT - later of 6 months afte end of month in which CLT made and 30 April in tax year following the tax year of CLT
CLT - death IHT - transferee - 6 months after end of month inwhich death occurred
PET - transferee - 6 months after end of month in which death occurred
Death estate - PR - on delivery of IHT account
Interaction of IHT and CGT
Lifetime gifts - CGT - gains based on MV arise on chargeable assets. For IHT - PET or CLT.
Gifts on death - exempt for CGT, death estate for IHT
