Topic 11 - IHT Special Rules

Question 1

How would you calculate the value of quoted shares?

Answer 1

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

Question 2

How would you calculate unit trusts?

Answer 2

The lowest bid price x #unit trusts

Question 3

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?

Answer 3

Valuation using normal rule
+ next dividend
+ next interest payment (amount rec’d less 20% tax)
= Value to be included in death estate

Question 4

What value would be included in the death estate for a Policy on own life?

Answer 4

Proceeds received

Question 5

What value would be included in the death estate for a Policy for the benefit of a named beneficiary?

Answer 5

Excluded from estate - EXEMPT

Question 6

Jointly owned property:
How would a joint tenancy be treated and valued?

Answer 6

Share automatically passes to other owners.

Appropriate proportion of value of whole property is included in death estate.

Question 7

Jointly owned property:
Tenants in common (own specific shares)

Answer 7

Share passes according to will

Open market value less 10% discount included in death estate.

Question 8

When would related property occur?

What does it apply to?

Answer 8

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.

Question 9

How do you calculate related property on all assets except for shares?

Answer 9

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

Question 10

How do you calculate related property for shares?

Answer 10

No. Shares held by donor/ (no. shares held by donor + no. of shares held by related party) x value of shares combined.

Question 11

When would Business Property Relief be triggered?

Answer 11

When a gift is relevant business property and held for a minimum period of ownership

Question 12

What is considered relevant business property for 100% BPR?

Answer 12

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)

Question 13

What is considered relevant business property for 50% BPR?

Answer 13

• 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

Question 14

Relevant business property:

1. Does it apply UK only or world wide property?
2. Can related property be taken into account when determining control?
3. 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

Answer 14

1. Worldwide
2. Yes
3. No.

Question 15

What is the minimum ownership period for BPR?

Answer 15

2 years

If asset was inherited on death of a spouse of civil parter, the couples combined ownership period is taken into account.

Question 16

What are the two exceptions to the minimum ownership period for BPR?

1. 3 points
2. 1 point

Answer 16

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.

Question 17

What is the definition of excepted assets?

Answer 17

An Investment Asset.

• Not wholly or mainly for business purposes in previous 2 years
• Not likely to be required for future use.

Question 18

Give examples of excepted assets?

Answer 18

• Large cash balances in excess of business requirement
• Shares and securities
• Let property

Question 19

How do you calculate the transfer of value eligible for BPR?

Answer 19

Value of co. total asset- excepted assets/ value of company total assets.

Question 20

When is BPR withdrawn?

Answer 20

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

Question 21

When would you get APR relief and how does it work?

Answer 21

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.

Question 22

What is relevant agricultural property?

Answer 22

• Farm land
• Pastures and buildings in UK, Channel Islands, Isle of Man or in EEA

Question 23

What is agricultural value?

Answer 23

Value assuming perpetual covenant prevent non agricultural use. ie lower than market value.

Question 24

APR is not available if the asset concern is subject to:

Answer 24

a binding contract for sale at date of transfer.

Option to buy is okay.

Question 25

Only 50% APR is available if:

Answer 25

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

Question 26

What is the minimum period of owners for APR if owned, tenanted or inherited?

Answer 26

2 years if owned
7 years if tenanted
If asset inherited on death of spouse/civil partner, combined ownership period is taken into account.

Question 27

Does replacement property and successive transfer exceptions apply?

Answer 27

Yes.

Question 28

For shares in a farming company, is APR available?

Answer 28

If individual has control (inc related property)
ownership conditions are met

Question 29

For shares in a farming company, what relief is given?

Answer 29

Agricultural value attributed to shares.

Question 30

How does APR interact with BPR?

Answer 30

• APR applies first, the BPR available on remaining value, where BPR conditions are met.

Question 31

When is APR withdrawn?

Answer 31

If on death, conditions are not satisfied:

No longer Ag prop
No longer owned by donee

Question 32

What is Quick succession relief?

Answer 32

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.

Question 33

How do you calculate QSR?

Answer 33

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.

Question 34

What are the % of QSR?

Answer 34

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%