Topic 4 Inheritance Tax Flashcards
An individual domiciled in the UK pays IHT on all of there assets.
True or False
True
Does an individual domiciled elsewhere pay IHT on all of their assets?
No only on assets in the UK
If 10% or more of the estate is left to charity what rate of IHT is payable?
36%
What happens to the RNRB if the estate value is over £2 million?
It reduces £2 for every £1
On the death of a person who has used some of their NRB what happens to the rest of it?
The unused percentage is transferred the surviving spouses RNB
E.G
£50,000 of the NRB left (£50k / £325k = 28.57% to be transferred.
28.57% x £325k = £92,852.50 + 325k = £417,852.50 to spouse
For owners in a joint tenancy agreement (not spouses) what happens to the deceased’s share?
It forms part of the estate for IHT purposes
What happens with IHT where there is a Tenancy in common arrangement?
A discount is introduced to offset the difficulty of selling the property
What is the discount for a 50/50 ownership in Tennants In Common
15%
If an owner in Tennants In Common owns less than 50% what is likely to happen to their discount?
Likely to be increased
All these are what in relation to IHT?
- Transfer between spouses
- Small gifts
- Annual exemptions
- Donations to charity, political parties, for nation
Exempt for IHT
All these are what in relation to IHT?
- Wedding gifts
- Gifts on a regular basis out of income
- Family maintenance
- Death in active service
Exempt for IHT
Transfers between spouses are exempt from IHT however what happens if the recipient is non UK domicile?
Exemption is limited to £325k
Small gifts are exempt from IHT up to what value?
£250
How many years can the Annual Exempt Amount (AEA) be carried forward if it is unused in a tax year?
In to the next tax year but no further
What is the amount a spouse or civil partner can gift to their partner that is free of IHT?
£2,500
What is the amount that a donor can gift to another person that is wedding gift that is free of IHT?
£1,000
Family maintenance payments are exempt from IHT?
True or False
True
When calculating IHT what is taken into consideration first the estate or the PET’s?
The Potentially Exempt Transfers
What is a “Gift with Reservation”
When a donor gifts an asset to someone else but continues to receive a benefit from the gift
How is a “Gift with Reservation” avoided?
It is added back onto the donor’s estate on death
Chargeable Lifetime Transfers are what?
Gifts to companies
What rate and at what time is the IHT on Chargeable Lifetime Transfers to be made?
Immediately and at a rate of 20%
How much IHT is due if a donor dies within 3 years of making a gift as a PET?
100% of gift value
How much IHT is due if a donor dies within 3-4 years of making a gift as a PET?
80% of gift value
How much IHT is due if a donor dies within 4-5 years of making a gift as a PET?
60% of gift
How much IHT is due if a donor dies within 5-6 years of making a gift as a PET?
40%
How much IHT is due if a donor dies within 6-7 years of making a gift as a PET?
20%
What is the “Cumulative Principle”?
The 7 year period is which a person’s estate is checked to see if other Chargeable Lifetime Transfers have been made during this time
Lifetime IHT is only payable if?
The value of the cumulative CLT transfers exceed the value of the NRB at the time of transfer
The below are what?
- Quick Succession Relief
- Business Relief
- Agricultural Relief
- Woodland Relief
Types of relief available on a Chargeable Lifetime Transfer
What is Quick Succession Relief?
An IHT relief available if an recipient of a gift does within 5 years of receiving the gift
How does Quick Succession Relief work?
A credit given which reduces by 20% (5 year maximum) each year on receipt of a gift.
What is Business Relief?
Relief given for qualifying business assets
What percentage of Business Relief do the below examples receive?
- Interest in an incorporated business
- Shareholding of a size in an unlisted company
- Shareholding in AIM- Listed company
100%
What percentage of Business Relief do the below examples receive?
- Controlling shareholding in a listed company
- Land, building or machinery used wholly or mainly for a business carried on (which donor has interest in)
50%
To qualify for business relief what does the claimer need to have done?
Owned the relevant property for at least 2 years before the date of transfer
Is the Business Relief available to the following in making or holding investments in?
- Securities
- Stocks and share
- Land and buildings
No
To qualify for Agricultural Relief how long must the land have been farmed by the transferor?
2 years by the transferor
What are the conditions that must be fulfilled if agricultural relief is to be claimed for lifetime transfers?
- Recipient must have retained the gifted property from the transfer date to the death of the donor
- Gifted property is disposed of and proceeds used to by another agricultural property within 3 years
What is available if a person inherits woodland that was not used for business purposes within 5 years?
A deferral of IHT is available on election
When is IHT on woodland paid?
When timber is sold
What is Pre-Owned Assets Tax (POAT)?
A tax that is chargeable to anyone who owned a property that they have sold and continue to benefit from owned after March 1986
Pre-Owned Assets Tax (POAT) is payable on what type of property?
- Land
- Chattels
- Intangible Property
For a Pre-Owned Assets Tax (POAT) tax is due on income?
Above £5,000
Pre-Owned Assets Tax (POAT) IHT on Chattels & Intangible Assets is calculated how?
Cash value off benefit at a percentage of the open market vaule
What are these in relation to Pre-Owned Assets Tax (POAT) charges?
- Transfers between spouses or civil partners
- Transfers between former spouses or civil partner where it has been ordered by a court
- Transfers between former spouses or civil partner where they have an interest from the outset
- Assets sold at arms length for cash if the price is similar to what an unconnected purchaser would have paid
Exclusions from Pre-Owned Assets Tax (POAT)
What are these in relation to Pre-Owned Assets Tax (POAT) charges?
- Gifted before 18th March 1986
- Transferred for the purposes of maintaining the family in accordance with the “maintenance of family” IHT exemption
- Gift covered by small gifts or AEA
- All ready forms part of the donor’s estate due to gifts with reservation rule
Exemptions from Pre-Owned Assets Tax (POAT)
These are what what in relation to pre-owned Assets Tax (POAT)?
- Dismantling the scheme
- Full market rent is paid for occupation of the property
- Elect the property as part of the IHT estate
How Pre-owned Assets Tax (POAT) is avoided
Why would a transferor “Gross up” the gift they make?
IHT is based on the loss to the transferor so there estate. Making the gift value less
When is IHT on CLT’s due if a transfer is made between 6th April & 30th September?
30th April the following year
When is the IHT on CLT’s between 1st October and 5th April due?
No later than 6 months after the end of the month in which the transfer is made
When are payments due for IHT if a transfer was made on death?
6 months at the end of the month of death
