Tax planning and anti-avoidance Flashcards
How may clients mitigate the risk of a PET becoming chargeable if they die within 7 years?
taking out fixed term life assurance to cover cost of IHT on the PET
Why should assets which will increase in value be favoured when giving PETs?
They are charged on their value at transfer not DOD
What is the parental settlement rule?
transfer to unmarried minor child treated as parent’s property for income tax
Who are exempt beneficiaries in wills?
spouses/civil partners
Charities
What consideration should be made when making a specific gift of qualifying business/agricultural assets?
Specific gifts to exempt beneficaries will waste the APR/BPR
How may APR/BPR be claimed on a specific gift to an exempt beneficiary?
Made into a discretionary trust
What consideration should be made when making a gift of residue of qualifying business/agricultural assets?
APR/BPR dont attach but are apportioned, may be wasted if apportioned to exempt beneficiary
How can bunching be avoided?
- Can make gifts to children or others
- Leave into discretionary trust so not included in estate when survivor dies
Is a trust under a will a separate legal entity?
No
When does a will trust come into existence?
DOD
What is a discretionary will trust?
To group of beneficiaries
No fixed rights to assets
Trustees have full discretion
What is a life interest trust?
benefit of life tenant and remainderman
Is there any immediate tax saving for a testator making a discretionary will trust?
No
What is the tax saving for discretionary will trusts?
Beneficiaries not taxed on assets when they die
What is the effect of a 2 year trust?
distributions made within 2 years treated as under will
Can RNRB be claimed for property left into discretionary trust?
No
Can the spouse exemption apply to life interest will trusts?
Yes if they are the life tenant
which loans are restricted from being deductible for IHT?
- Loans to acquire, maintain or enhance BPR assets
- Loans not repaid from the estate
- Loans to acquire, maintain or enhance excluded property
- Loans which fund qualifying foreign currency account
How should loans to acquire, maintain or enhance BPR assets be treated?
Set off against qualifying assets first
What are the two circumstances in which a transfer may be treated as a GROB?
- Donee does not assume ‘bone fide possession’ of the property at or before the start of a relevant period
- At any time in the relevant period, the property is not enjoyed to the entire exclusion or virtually entire exclusion of the donor and of any benefit to him by contract or otherwise
What is the relevant period for a GROB?
7 years prior to death
What is bona fide possesion?
- Obtain a vested beneficial interest
- Have actual enjoyment
- Assume possession and enjoyment at start of relevant period
When may a gift into trust be a GROB?
Where they are the potential beneficiary
What is the tax effect of a GROB?
a) If subsists at DOD – treated as part of donor’s estate
b) If no longer – treated as PET made on date reservation ceased (no Annual Exemption)
What is the pre-owned assets charge?
annual income tax charge on giving away certain types of property during lifetime but subsequently obtaining a benefit
What property does POAC apply to?
- Land
- Chattels
- Intangible property in settlor-interested trust
When is land subject to POAC?
o Individual occupies land
o Disposal condition or contribution condition is met (without obtaining beneficial interest)
What is the effect of POAC?
benefit treated as income so income tax payable at market rent value
What is the tax effect of a settlor interested trust POAC?
Calculated by reference to official interest rate payable on the settled property
What are the excluded POAC transactions?
o Transfer to spouse/civil partner
o Family maintenance
o Annual and small gifts
o Arms length sales
o Occupation 7 years after cash gift
