WAE IHT Flashcards

1
Q

What are the 4 exemptions/reliefs that apply to both lifetime transfers and upon death?

A

Spouse exemption = can transfer an unlimited value of property between spouses (nil rate band can also be transferred)
Charity exemption = any gifts made to charities/political parties with at least one elected representative
- DEDUCT this from the chargeable estate
Business property relief = must be a trading company; must have owned shares for at least 2 years at time of transfer
- 100% reduction if (a) business/business interest (b) unquoted shares
- 50% reduction if (a) quoted company shares if transferor had voting control (over 50%) (b) land/buildings/machinery/plant owned by transferor personally but used for business purposes by company where transferor had voting control
Agricultural property relief = reduction of 100% for anything beginning on/after 1 September 1995; reduction of 50% on everything else

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2
Q

What are the exemptions/reliefs that only apply to lifetime transfers?

A

Annual exemption = can transfer £3,000 each year; exemption can be carried forward one year
Small gifts = make an unlimited number of gifts of £250 as long as they are not given to the same person in one tax year
Normal expenditure of income
Gifts in consideration of marriage = (a) £5,000 from parents (b) £2,500 from remoter ancestor (c) £1,000 in any other case

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3
Q

What form is used for IHT loss relief on land sold at a loss within 4 years?

A

IHT38. (Shares = IHT35)

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4
Q

Ali leaves “my half share in the flat” in his will. It’s jointly owned. No severance. Result?

A

The gift fails.
🏠 The other joint tenant takes all by survivorship.

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5
Q

Joshua sends a severance letter to his co-owner. It’s received. What happens?

A

✔ Joint tenancy severed.
➡️ Now a tenancy in common → can gift by will.

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6
Q

Which form claims IHT loss relief on shares sold within 12 months of death?

A

📄 IHT35 – shares / quoted investments

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7
Q

Which form claims IHT loss relief on land sold at a loss?

A

📄 IHT38 – land / buildings sold within 4 years

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8
Q

When does the tax year run?

A

6th April to 5th April

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9
Q

What are the three trigger events for IHT?

A
  1. Potentially Exempt Transfers (PETs)
    Lifetime transfers of value
    Become chargeable only if the transferor dies within 7 years
    Failed PETs = chargeable
    s3A IHTA 1984
  2. Lifetime Chargeable Transfers (LCTs)
    Lifetime transfers of value
    Immediately chargeable at 20% (lifetime rate)
    Reassessed at 40% if the transferor dies within 7 years
  3. Death
    Deemed transfer of the estate immediately before death
    s4 IHTA 1984
    Charged at 40% above the nil rate band
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10
Q

From what date do transfers into trust give rise to a Lifetime Chargeable Transfer (LCT)?

A

22 March 2006
All lifetime transfers of value into a trust on or after this date are treated as Lifetime Chargeable Transfers (LCTs).

Taxed immediately at 20%
Reassessed at 40% if donor dies within 7 years
Use the NRB available at death

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11
Q

When is a lifetime gift a Lifetime Chargeable Transfer (LCT) instead of a Potentially Exempt Transfer (PET)?

A

A lifetime gift is a LCT when it is:

Made to a discretionary trust
Made to a company
Not qualifying as a PET under s3A IHTA 1984

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12
Q

What are the current nil rate bands and when does RNRB apply?

A

NRB: £325,000
RNRB: £175,000 (if home left to direct descendants and death is post 6 Apr 2017)

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13
Q

How is a “transfer of value” defined under IHTA 1984?

A

A disposition that reduces the value of the transferor’s estate (s 3(1) IHTA).
Chargeable if not exempt (s 2(1) IHTA).

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14
Q

How is the value of a transfer calculated?

A

Lifetime: loss to donor’s estate
Death: open market value of asset at date of death (s 160 IHTA)

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15
Q

What is the standard Nil Rate Band (NRB) and what happens if it’s unused?

A

£325,000 — taxed at 0%
Unused NRB can be transferred to surviving spouse/civil partner (TNRB)

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16
Q

What is the Residence Nil Rate Band (RNRB) and when does it apply?

A

Extra £175,000 nil rate band
Applies if deceased dies on or after 6 April 2017
Their death estate included a ‘qualifying residential interest’ (QRI)
The QRI was ‘closely inherited’ by a ‘direct descendant’

Also transferable

17
Q

How does a PET become fully exempt?

A

If the transferor survives seven years from the date of the PET

18
Q

What is “cumulation” in IHT?

A

Cumulation = total of chargeable transfers in last 7 years
Used to reduce NRB for later transfers
Formula: Available NRB = £325,000 – cumulative total

19
Q

How does the TNRB work?

A

If a married individual dies and they have not used up their NRB, the PRs of the surviving spouse can claim an increase in the survivor’s NRB equal to the unused percentage of the first spouse’s NRB

20
Q

What is the maximum amount of TNRB that can be claimed?

A

Equal to 100% of the NRB

21
Q

For what value of net estate is RNRB not available at all?

A

Estates worth £2,350,000 or more (or £2,700,000 where a full transferred RNRB applies)

22
Q

What is the Annual Exemption (AE) in Inheritance Tax

A

£3,000 per tax year can be given free of IHT
Applies to lifetime transfers only (not death estate)
Does not use up the NRB
If unused, can be carried forward one year only (use current year’s first)
Can be combined with other exemptions (e.g. small gifts exemption)

23
Q

How to calculate IHT on Lifetime transfers (e.g. failed PET, LCT reassessed):

A

Can Very Easy Numbers Truly Calculate

Cumulative total
Value transferred
Exemptions/reliefs
Apply NRB
Taper relief
Credit for lifetime tax

24
Q

Can Very Easy Numbers Truly Calculate

A

Cumulative, Value, Exemptions, NRB, Taper, Credit

25
How to calculate IHT on death?
Clever – Cumulate prior gifts (7 years) Investigators – Identify estate assets Value – Value assets at market rate Dead – Deduct debts Estate – Exemptions & reliefs Records – Residence NRB Brilliantly – Basic NRB + calculate IHT
26
How does the tapering rule reduce the RNRB for high-value estates?
If the net estate exceeds £2 million, the RNRB is reduced by £1 for every £2 over that threshold. No RNRB is available once the estate exceeds: £2.35 million (if just RNRB) £2.7 million (if full transferable RNRB also claimed) Tapering applies before applying the RNRB.
27
What are the 3 conditions for the RNRB downsizing addition?
The deceased sold, gifted, or downsized their qualifying residential interest (QRI) after 8 July 2015 If retained, the QRI would have qualified for RNRB (i.e. left to direct descendant) The deceased left other assets to a direct descendant that represent the lost QRI
28
What is the maximum combined value of the nil rate bands available to the estate of a surviving spouse?
£1,000,000
29
When can a 10% discount apply to jointly owned property?
When property is co-owned not with a spouse/civil partner and the deceased held a share (e.g. tenancy in common or joint tenancy severed for IHT purposes). → 10% reduction reflects difficulty in selling a partial interest.
30
Which post-death expenses are deductible for IHT?
Only reasonable funeral expenses and tombstone costs. → Legal fees, probate costs, etc., are not deductible. Other post-death expenses are payable from estate assets but cannot be deducted from the value of the IHT estate to reduce the overall tax due