Week 3

Question 1

Resident

Answer 1

Taxed on worldwide income

Receive double tax relief (DTR) if suffer tax in both countries

Question 2

UK Resident but Non-Domiciled

Answer 2

Taxed on worldwide income
BUT
If resident <15 years can claim remittance basis

Only pay tax on overseas income if cash is brought to UK
Lose personal allowance and possibly pay an annual charge £30k/£60k

Question 3

Non Resident

Answer 3

Only taxed on UK income

Question 4

IHT Intro

Answer 4

Every individual is entitled to a nil rate band (NRB)
This identifies the maximum value of lifetime and death transfers over a 7 year period which can be made without incurring any IHT liability
Any amount above this NRB is chargeable to IHT at:
40% - the death rate (may be reduced to 36%); or
20% - the lifetime rate.

The rate is set for each tax year - FA 2021 = £325,000.

Question 5

Residence Nil Rate Band

Answer 5

On the death of an individual where the estate is in excess of the basic nil rate band, the estate may qualify for an additional threshold before any IHT becomes due:
For FA2021, the rate is £175,000

The amount of this additional threshold is the lower of:
The value of the home (or share) that direct descendants inherit
The maximum additional threshold available (per tax tables).

Question 6

RNRB Cont, A direct descendant is:

Answer 6

Child, grandchild or other lineal descendant

Spouse or civil partner of a lineal descendant.

Question 7

RNRB, For the home to qualify for the relief the deceased must have owned and lived there at some time:

Answer 7

Only one home will qualify for the relief
To qualify for the relief the home must be inherited:
- In a will
- Under the rules of intestacy (i.e. if there is no will)
- By some other means.

Question 8

RNRB Cont; Tapering

Answer 8

• If an estate is worth more than £2 million the RNRB will taper away
• Tapers (i.e. reduces) by £1 for every £2 that the estate is worth more than the £2 million threshold.

Question 9

RNRB Cont, other points to note

Answer 9

• Apply the RNRB before the basic NRB
• Any unused RNRB may be available to transfer to spouse / civil partner (see later)
• RNRB does not apply to lifetime transfers
• If house is left to a mixture of direct descendants and others, split the RNRB in the same proportion

Question 10

Lifetime transfers: Two types of gifts- Potentially Exempt Transfers (PETs)

Answer 10

All gifts (except CLTs) are PETs

E.g. gift of cash, investments, chattels to relatives

The value of the gift (“gross transfer”) is calculated at the time of gift

Only subject to IHT if donor dies with 7 years. They are NOT chargeable when made

Question 11

Lifetime transfers: Two types of gifts- Chargeable Lifetime Transfers (CLTs)

Answer 11

CLTs = Gifts into Trusts

It is the only gift chargeable to IHT when the donor is still alive, hence the name:

“Chargeable Lifetime Transfer”

IHT paid in lifetime and again if the donor dies
within 7 years

Question 12

Exempt gifts: Lifetime gifts to the following are EXEMPT from IHT

Answer 12

1) Spouse- Exemption is restricted to £325,000 if recipient not domiciled in the UK.
No restriction, however, if both spouses non-UK domiciled

2) Charity

3) Political Parties- Either 2 MPs or
1 MP and £150k

Question 12

Exempt gifts: Lifetime gifts to the following are EXEMPT from IHT

Answer 12

1) Spouse- Exemption is restricted to £325,000 if recipient not domiciled in the UK.
No restriction, however, if both spouses non-UK domiciled

2) Charity

3) Political Parties- Either 2 MPs or
1 MP and £150k

Question 13

Lifetime Exemptions: The following exemptions are only available in lifetime, not on death

Answer 13

1) Annual Exemption
2) Marriage Exemption
3) Small gifts
4) Regular gifts out of income

Question 14

Annual exemption

Answer 14

1) The first £3,000 of gifts, per tax year are exempt from IHT
2) Any unused Annual Exemption is carried forward for one tax year only
3) Therefore, maximum AE is £6,000 if no gift in prior year

Question 15

Marriage Exemption

Answer 15

1) Additional exemption applies if the gift is made in the contemplation of marriage
2) Any unused ME cannot be carried forward
3) Therefore, offset the ME before the AE

Recipient
Children- £5,000 Exemption
Grandchildren- £2,500 Exemption
Other- £1,000 Exemption

Question 16

Small gifts exemption

Answer 16

1) Gifts of a small amount to a single person, every year is exempt from IHT
2) This is a LIMIT not an allowance
3) Therefore, if a gift exceeds limit, the exemption is lost

Meaning of small gift- £250 or less, per person, per annum

Question 17

Regular Gifts Out of Income

Answer 17

1) If gifts are made regularly (weekly, monthly, annually), out of surplus income, the gifts are exempt from IHT
2) There is a no limit on the amount of gift
3) Great way for wealthy families to pay for school fees etc!

Criteria-

• Must be regular
• Must be out of income, not capital
• Must not leave you unable to pay your living costs

Question 18

IHT Payable on Lifetime gifts (1)

Answer 18

Where a donor dies within 7 years of having made a lifetime transfer, then:
PETs now become chargeable

Question 19

IHT Payable on Lifetime Gifts: The Death of the Donor: Impact on Lifetime Transfers calculation

Answer 19

1) Identify each separate gift (always use the gross amount) arising in the 7 years prior to death (both PETs and CLTs)

2) Identify how much NRB is available (cumulation period rules apply) for each gift:
Note: use the NRB on date of death – likely to be £325,000

3) Deduct the gift from the NRB
Apply tax at 40% on excess of each gift over NRB