WE 6 IHT & PET Flashcards
What is the IHT rate for a lifetime transfer?
20%
What happens if someone dies within 7 years of a lifetime transfer?
The lifetime transfer is reassessed to tax using the NRB at the date of death
What are the steps in calculating IHT on lifetime transfers?
1) calculate the cumulative total
2) Identify the value transferred
3) Apply exemptions and reliefs
4) Apply NRB and calculate tax
AFTER DEATH
5) apply taper relief
6) give credit for tax paid in lifetime
How is the cumulative total calculated for and LCT or PET?
The cumulative total is calculated by adding up the value of all chargeable transfers made in the 7 years prior to the TRANSFER
What value is used to work out the disposal value of a LCT?
It is the loss of value to the donor’s estate
NOTE: important for things like sets where the reduction in value of the donor’s estate by gifting a part of a set may be greater than the value received by the donee on receiving a part of a set.
What are the exemptions and reliefs that may apply to a LCT?
- Spouse
- Charity
- Family maintenance
- Annual exemption
- Small gifts allowance
- Normal expenditure from income
- Marriage exemption
- Business property relief
- Agricultural property relief
- Taper relief
What is the Annual Exemption for LCT?
£3,000 per year. Can include £3,000 from the previous year if not used.
NOTE: this is the last relief that applies.
NOTE: only applies to lifetime transfers, not on death
Does the “Residence Nil Rate Band” apply to LCTs?
No
What is the value of the NRB applicable to a LTC?
The NRB at the date of transfer
What is the NRB that applies to a failed PET or re-assessed LCT?
The NRB amount as the date of death
What is the percentage 40% IHT due for a failed PET (taper)?
0-3 years before death = 100%
3-4 years before death = 80%
4-5 years before death = 60%
5-6 years before death = 40%
6-7 years before death = 20%
NOTE: work out tax first then x by above
Are PETs that have yet to failed taken into account when considering the cumulative total for LCTs?
No
Who is liable to pay IHT on LCT during the donor’s lifetime?
The donee (i.e. the trust out of the settled assets).
However, if the donees doesn’t pay, the donor becomes liable or he may elect to be liable (this requires grossing up as the funds to pay the IHT have also left his estate).
Who is liable to pay IHT on LCT and failed PETs after the donor’s death and what happens if they don’t pay?
the recipient (donee) is.
If the donee doesn’t pay within 12 months of the end of month of death, the PRs become liable
Will the IHT estate always be the same as the estate that passes to the PRs (the free estate)?
No. Some assets may pass outside the succession estate such as:
- joint tenant property
- Gifts with reservation of benefit