Osborne 7: IHT Flashcards
(First intuition)
How often does the £325K ‘reset’
ie can give away 325K exery 7 years
Whats the marriage exemption?
£5000 from parent. (Can be each parent) £2500 grandparent £2500 from the couple (to each other?) £1000 (from anyone else)
IHT ‘lifetime’ rate
20% if trust pays
25% if doner pays
FI:
Can the £2500 grandparent marriage allowance apply to a legacy?
No its a ‘lifetime’ allowance
CLT
Chargeable Lifetime transfer
PET
Potentially exempt transfer
.
Need to check about the £3K annual…
I know you can b/f last years … but can you..
give £3K and elect to use last years so that you can carry fw this years???
Or do you have to use this year’s first?
.
CGT 3K exempt amount
what to remember?
Can c/f one year but must use current year first.
(ie. If you give nothing one year and then 3k the next you cannot ‘use’ last year’s and c/f this year’s)
Unlike the £250 allowance this can be ‘deducted’ from an amount that is larger than £3K
Gift to a trust is a CLG but you can use the 3K exempt amount towards this gift
CGT £250 gifts
what to remember?
It’s up to £250 only … cannot deduct that amount as exempt from a larger amount..
Danny is married to Sandy and they jointly own a house with 50% ownership each. Danny dies in June when the property value is 200K .
The value of the property in his death estate is ?
£nil
‘Jointly own’ is referring to a joint tenancy where on death the property automatically passes to the other person.
NB it passes to Sandy and is exempt because she is spouse. If jointly owned with a sibling or other person it would pass to them but there would be IHT (depending on value of estate, nil rate band etc)
(tenants-in-common each own a specified share)
RNRB
Residence nil rate band
Even if spouse died before this existed they still get the RNRB through the spouse estate,
Gross Chargeable Transfer
How to handle ?
If less than 7 years it goes against nil rate band
IHt can apply to estate of someone died and also sometimes to gifts during life … what are these ?
Transfers.
Transfers on death or Lifetime transfers
UK domiciled
How taxed on property?
IHT on property anywhere in the world
nonDoms
How taxed on property?
IHT usually only on UK property.
But in certain circumstances can ELECT to be treated for IHT as if uk domiciled )not sure why you would?)
The domiciled/ nonDom rues for IHT and CGT are similar
.
Types of Transfer ?
- Exempt transfers - life or death
- Chargeable lifetime transfers - life
- Potentially exempt transfers - life
- Transfers on death - death
Exempt transfer
Not chargeable to IHT
Can be excluded from calculations
Some types of exempt transfer only relate to lifetime transfers, while others could be made either during the lifetime or at death
Chargeable lifetime transfers
CLTs
Subject to IHT as soon as they are carried out.
Those that exceed the cumulative tax threshold (or NRB) of £325K will involve payment of IHT.
The main category of CLTs are transfers t specific trusts
Potentially exempt transfers
PETs
Lifetime transfers that will be Exempt from IHT if the donor lives at least 7 years after gift made.
ALL lifetime gifts except ETs and CLTs are PETs
Transfers on death
When individual dies their ‘estate’ is made up of
Assets minus liabilities & funeral expenses.
On death the individual is treated as making a final transfer of the whole of his or her estate.
assuming no LTs how to calculate IHT
- Take value of estate
- Deduct exempt transfers (usually through bequests)
- Deduct tax threshold of £325k
- Calc IHT 40% on any balance
Exempt transfers on death
These are also exempt if made as gifts during lifetime
- UK DOMICILED spouse (or Civil partner)
- Charity, museum, university, amateur sports club
- QUALIFYING political party
- Transfer of LAND to housing association
RNRB
what 2 detail to remember
what amount
when deducted
- individual must have used as his or her residence.
- nil rate band can be passed to spouse even if didn’t own a home. its amount is ‘set’ by 2nd death
Lower of
- Value of house or SHARE of it that direct d’s inherit
- £175K (2020/21)
Deducted in the calc of IHT on death just BEFORE main NRB is applied. It cannot apply to lifetime transfers
Lifetime exempt transfers - 6
- The 4 that are exempt in death (S,Scum,qPP,L2ha)
- Up to £3K of gifts (annual exemption)
- Small gifts up to £250 per person
- Marriage gifts (5k; 2.5k, 2.5k, 1k)
- Regular gifts out of income to anyone (w/o affect LS)
- Payments to help living costs of ex-spouse,dependent rely old or ill; child
Chargeable lifetime transfer
Pay 20% on amount exceeding NRB immediately.
(This is cumulative but resets every 7 years)
(Can deduct annual allowances first where applicable)
If death within 7 years affects NRB & pay another 20%
receiver pays (usually trust)
i don’t think need to consider taper?
PET
how to identify,
how to deal with
If its not a CLT or an ET its a PET
if live 7 years PET becomes ET
if less than 7 yrs add it back in … if PET exceeds NRB recipient is liable for the 40% tax
Note that the PET uses up the NRB but the estate doesn’t end up paying IHT on PETs because after NRB is used the recipient is liable. so estate can only ever be taxed at 40% of the estate,
Gifts at death to charity
- Calculate net estate:
* Take total estate
* Deduct OTHER exempt transfers (spouse, sports club etc?) but NOT the donation.
* Deduct NRB & RNRB
Check what 10% of net estate would be and see if donation exceeds in which case IHT becomes 40%
Normal due dates for IHT
CLTs up to 30 September (ie first 6 months of tax year including April)
by 30 april in following calendar year
Normal due dates for IHT
CLTs after 30 september
6 months after EOM
so basically same deadline for the october?
Normal due dates for IHT
Transfers on Death
6 months after EOM death occurred.
includes additional tax due on CLTs & PETs that have become chargeable
Be careful calculating what amount someone inherits!!
Remember need to go back to beginning as first calc is just to work out tax..
Go back and deduct the bequests and the tax only (not the NRB!!!)
- Work out remaining NRB
NRB minus CLTs and PETs but look out for exemptions
2. Work out IHT Start with Total estate Deduct exempt items Deduct RNRB(s) & NRB(s) Calculate tax
- If needed work out amount received (ie. total estate minus bequests & tax .. remember if NRB was exceeded by PETs the pet recipient pays
.
Can a person who always lived abroad and not domiciled here ever pay iht here?
May be subject to iht on assets held in uk
Chargeable lifetime transfer
25% tax where donor pays tax
20% tax where trust pays tax
.
Kaplan
A person who is Non-Dom is subject to IHT on UK assets only. The concept of residence is not relevant for IHT purpose
.
need to know due dates.
CLT
Transfer on Death
CLT:
30th April if it was in first 5 months of tax year
EOM + 6 months if in last 7 months of tax year
Transfer on Death:
EOM + 6 months
allowed deductions from estate
grocery bill - deductible as incurred for consideration.
mortgage - deductible , will be set against value of house primarily (does this affect the RNRB?)
HMRC - income tax to death - deductible as legally enforceable.
Illegal gambling debt - not deductible as not enforceable by law
. It seems the case that if there is a mortgage on the property you can only set the RNRB against the equity.
eg the property is worth £300K but there is a £150K mortgage … you then ‘lose’ £25K of RNRB
I dont think this will come up in exam
Dont remember this from osborne but there is a BPP question about giving away shares and valuing them for IHT
On date of transfer the shares were valued at 250-280p with marked bargains of 252, 276, 264 & 279.
How to do this?
LOWER of
1/4 up:
250 + (280-250)/4
=257.5
Average:
(252+279) / 2
=265.5
If give birthday present of 200 and then xmas present of 250 to same person … how much is exempt?
None!!
If you go over the 250 the whole lot is taxable
(unlike staff partys)
to check whether iht can be 36%
Most donate 10% of net estate.
Start with Estate value
Deduct OTHER exemptions.
This is the net amount … check if donation is >10%
If it is then start again but this time DO deduct the donation with the other exempt items (left to spouse, sports club)
Only diff is now you know you can change 40% to 36% for the tax calc
PET then CLT
PET - no lifetime IHT, ignore NRB
CLT - full NRB available use b4 20% tax
after death though
PET first so if now chargeable it uses NRB first
.Tricky
If make 2 CLTs within 7 years
Life IHT on the second is whatever NRB left after 1st CLT.
But even if death is >7 years after 1st CLT
1st CLT - no extra tax at death BUT
it still uses the NRB so you still list it and use NRB
before moving to 2nd CLT
Unlike PETS which drop off the radar after 7 years
