Post death changes Flashcards
How is a gift from an original beneficiary treated for tax purposes if they refuse their gift?
It is treated as a transfer made by that beneficiary.
What is a Potentially Exempt Transfer (PET) in the context of inheritance tax?
A PET is made by the original beneficiary and is chargeable if they die within 7 years of the gift.
What is the capital gains tax (CGT) implication of the intended beneficiary gifting a non-cash asset?
It would be a CGT disposal by the original beneficiary - any increase in value since the DoD would be suget to CGT.
What is a variation in the context of inheritance?
A direction from the original beneficiary to the deceased’s personal representatives (PRs) to transfer property to another person.
When can a variation be made?
After inheritance has been accepted.
What must a variation comply with to be valid?
- Made by original beneficiary in writing
- Within two years of deceased’s death
- Contains an express statement by beneficiary confirming s142
- Not be made for consideration in money or for money’s worth
How is a gift from the original beneficiary treated for IHT purposes?
It is treated as if it is from the deceased to the new beneficiary.
It is read back for IHT purposes.
What are the IHT effects if additional IHT is due from a variation?
- The PRs should sign the variation
- Provide HMRC with a copy of the written variation and pay the amount due
Under what condition can PRs refuse to sign a variation?
If the assets held by them are insufficient to pay the additional tax
What happens if the amount an exempt beneficiary receives changes?
This may result in an increase or decrease in IHT payable.
What are the CGT effects when a variation is made under s62 Capital Gains Tax Act?
- New beneficiary is treated as inheriting the assets from the deceased
- The original beneficiary has not made a disposal
- Any increase in value will be taxed in the hands of the new beneficiary when disposed of
- No additional CGT as a result of variation
- Gifts of cash are exempt from CGT
What are the requirements for the writing back provision under s62 to apply to CGT?
- Made by original beneficiary in writing
- Within two years of deceased’s death
- Contains an express statement by beneficiary confirming s62
- Not be made for consideration in money or for money’s worth
What are the restrictions on varying your inheritance?
- must have capacity
- can only vary once for tax purposes
- property where the deceased was a life tenant cannot be varied
- og beneficiary can’t make a GROB if they make a variation
What is a disclaimer in the context of property?
A refusal to accept property.
What are the limits of disclaiming a gift?
- can only disclaim before acceptance
- can only disclaim the whole gift (c.f part as with a deed of variation)
- disclaimer of B’s rights under a will doesn’t disclaim any new rights they might get under a resulting intestacy
- OG beneficiary can’t control who receives the assets
How is an estate taxed when a beneficiary disclaims?
The estate is taxed as though the person who is ultimately entitled had actually been entitled on death.
What is a precatory trust?
A precatory trust arises when a gift is made to a beneficiary by will with a wish expressed on how to pass on those assets.
Is a formal trust created in a precatory trust?
No formal trust is created, and the testator’s wishes are not binding on the beneficiary.
Does a precatory trust vary the distribution of an estate directly?
No, it does not vary the distribution directly but has a similar legal effect for IHT if the beneficiary acts on the testator’s wishes.
What does s.143 IHTA state regarding distributions by the original beneficiary?
If the original beneficiary makes the distributions intended by the testator within 2 years of the testator’s death, these are treated for IHT purposes as gifts made by the testator’s will.
How is re-distribution according to the testator’s wishes (under a precatory trust) treated for CGT?
It would be treated as a disposal by the original beneficiary.
No CGT reading back provisions.
What is the likely impact on value for CGT in a precatory trust?
The increase in value is likely negligible.
