Introduction to IHT

Question 1

Who does IHT apply to?

Answer 1

1) UK-domiciled individuals – worldwide assets

2) Non-UK domiciled – UK assets only.

Question 2

What is IHT payable on?

Answer 2

The death estate and certain lifetime transfers.

Question 3

What are the IHT rates?

Answer 3

0% NRB, 20% for lifetime chargeable transfers, 40% on death.

Question 4

What is the basic nil rate band?

Answer 4

£325,000.

Question 5

What is the residence nil rate band?

Answer 5

£175,000.

Question 6

What is the transferable nil rate band?

Answer 6

Unused NRB and RNRB transferable to surviving spouse.

Question 7

What are potentially exempt transfers (PETs)?

Answer 7

Lifetime gifts taxable if donor dies within 7 years.

Question 8

What are lifetime chargeable transfers (LCTs)?

Answer 8

Gifts taxed at 20% immediately, reassessed to 40% if donor dies within 7 years.

Question 9

What is a chargeable transfer?

Answer 9

A gift or transfer that reduces value of estate.

Question 10

How is a lifetime transfer valued?

Answer 10

Based on donor’s loss in estate value.

Question 11

What is death estate valued at?

Answer 11

Market value at date of death.

Question 12

What is taper relief?

Answer 12

Reduces tax on PETs depending on how many years have passed since gift.

Question 13

Taper relief rates (years since gift)?

Answer 13

3-4: 32%
4-5: 24%
5-6: 16%
6-7: 8%
7+: 0%.

Question 14

What is the effect of multiple lifetime gifts?

Answer 14

Reduce available NRB for future PETs/LCTs.

Question 15

Steps to calculate IHT on lifetime transfers?

Answer 15

1) Value
2) Apply reliefs
3) Deduct NRB
4) Apply tax
5) Taper relief.

Question 16

Steps to calculate IHT on death estate?

Answer 16

1) Add past gifts
2) Identify assets
3) Value estate
4) Deduct debts/expenses
5) Apply exemptions
6) Deduct RNRB
7) Deduct NRB
8) Apply 40%.

Question 17

What are IHT exemptions?

Answer 17

1) Spouse gifts
2) Charities
3) Annual exemption
4) Small gift
5) Marriage gifts.

Question 18

What is the annual gift exemption?

Answer 18

£3,000 per tax year.

Question 19

What is the small gift exemption?

Answer 19

£250 per person per year.

Question 20

Marriage gift limits?

Answer 20

£5,000 from parents, £2,500 from grandparents, £1,000 from others.

Question 21

What are IHT reliefs?

Answer 21

1) Business relief
2) Agricultural relief
3) Charity relief.

Question 22

What is business relief?

Answer 22

100% relief on business assets.

Question 23

What is agricultural relief?

Answer 23

100% relief on farmland.

Question 24

What is charity relief?

Answer 24

Gifting 10% of estate to charity reduces IHT from 40% to 36%.