Topic 11 - IHT Special Rules Flashcards
How would you calculate the value of quoted shares?
For Inheritance tax only:
LOWER OF:
Quarter up method
Lower quoted price + 1/4 x (higher price-lower price)
or
Average Bargain
Highest Bargain + Lowest bargain / 2
How would you calculate unit trusts?
The lowest bid price x #unit trusts
Shares and securities can be sold without the right to the next dividend/interest payment. If the original owner dies before the dividend is paid to them it belongs to the estate. How do you calculate the value to be included in the death estate?
Valuation using normal rule
+ next dividend
+ next interest payment (amount rec’d less 20% tax)
= Value to be included in death estate
What value would be included in the death estate for a Policy on own life?
Proceeds received
What value would be included in the death estate for a Policy for the benefit of a named beneficiary?
Excluded from estate - EXEMPT
Jointly owned property:
How would a joint tenancy be treated and valued?
Share automatically passes to other owners.
Appropriate proportion of value of whole property is included in death estate.
Jointly owned property:
Tenants in common (own specific shares)
Share passes according to will
Open market value less 10% discount included in death estate.
When would related property occur?
What does it apply to?
Unique to IHT! Applies to:
- unquoted shares
-collections of antiques; and
- plots of land.
Property of a similar kind owned by the donors spouse or civil partner.
- or a charity, political party, national public body, or housing association as a result of a gift from the donor.
How do you calculate related property on all assets except for shares?
All asset except for shares:
Value of the donor’s assets/ (value of donor’s assets + value of related property) x value of combined assets = transfer value
How do you calculate related property for shares?
No. Shares held by donor/ (no. shares held by donor + no. of shares held by related party) x value of shares combined.
When would Business Property Relief be triggered?
When a gift is relevant business property and held for a minimum period of ownership
What is considered relevant business property for 100% BPR?
Must be:
- Unincorporated business e.g. a sole trader or partnership business
- Unquoted trading company shares (regardless of how many held)
- Securities in an unquoted trading company where the individual has control (loan notes)
What is considered relevant business property for 50% BPR?
- Quoted trading company shares where the individual has control in that company.
- Land, buildings and P&M in a business carried on by:
- Company in which donor has control
- Partnership in which donor is a partner
Relevant business property:
- Does it apply UK only or world wide property?
- Can related property be taken into account when determining control?
- Is it available if the asset is subject to a binding contract for sale at the date of transfer? eg sold to other partners on death
- Worldwide
- Yes
- No.
What is the minimum ownership period for BPR?
2 years
If asset was inherited on death of a spouse of civil parter, the couples combined ownership period is taken into account.
What are the two exceptions to the minimum ownership period for BPR?
- 3 points
- 1 point
Replacement property
- Relevant business property is not held for 2 years but replaces other relevant business propert.
- BPR is available if the combined period of ownership is at least 2 out of the last 5 years.
-BPR is calc’d on the lower of the two property values so it cannot exceed the relief that would have been given on the original property.
Successive transfer
BPR is available if the property has not been held for 2 years if the property was eligible for BPR when acquired and either the previous or current transfer was made on death.
What is the definition of excepted assets?
An Investment Asset.
- Not wholly or mainly for business purposes in previous 2 years
- Not likely to be required for future use.
Give examples of excepted assets?
- Large cash balances in excess of business requirement
- Shares and securities
- Let property
How do you calculate the transfer of value eligible for BPR?
Value of co. total asset- excepted assets/ value of company total assets.
When is BPR withdrawn?
If:
- Asset not longer relevant business property; OR
- Donee no longer owns property.
If BPR not available when calculating tax due on death, and if the original transfer was a CLT, the original transfer after BPR is used when calculating the remaining NRB
When would you get APR relief and how does it work?
If an assets it relevant agricultural property and held for a minimum ownership period.
Reduced the value of the gift or death estate by 100% of the agricultural value.
What is relevant agricultural property?
- Farm land
- Pastures and buildings in UK, Channel Islands, Isle of Man or in EEA
What is agricultural value?
Value assuming perpetual covenant prevent non agricultural use. ie lower than market value.
APR is not available if the asset concern is subject to:
a binding contract for sale at date of transfer.
Option to buy is okay.
Only 50% APR is available if:
the farm is tenanted; and
lease was granted pre 01/09/1995; and
owner does not have the right to vacant possession within 2 years
What is the minimum period of owners for APR if owned, tenanted or inherited?
2 years if owned
7 years if tenanted
If asset inherited on death of spouse/civil partner, combined ownership period is taken into account.
Does replacement property and successive transfer exceptions apply?
Yes.
For shares in a farming company, is APR available?
If individual has control (inc related property)
ownership conditions are met
For shares in a farming company, what relief is given?
Agricultural value attributed to shares.
How does APR interact with BPR?
- APR applies first, the BPR available on remaining value, where BPR conditions are met.
When is APR withdrawn?
If on death, conditions are not satisfied:
No longer Ag prop
No longer owned by donee
What is Quick succession relief?
Reduced IHT payable on death estate where one death is followed shortly by another death (within 5 years)
Relief is available on the second death.
How do you calculate QSR?
IHT paid on 1st death x percentage
IHT paid on 1st death =
Total IHT on 1st death/ gross chargeable estate x value of gifted asset.
What are the % of QSR?
Period between deaths
1 year or less - 100%
1-2 year - 80%
2-3 years - 60%
3-4 years - 40%
4-5 years - 20%
over 5 years - 0%
