Week 4

Question 1

Taper relief and other matters

Answer 1

Transfers made between 3 and 7 years of the donor’s death qualify for taper relief:

• Applies both to PETs and CLTs
• Reduces IHT otherwise payable by a set percentage

3-4 years – reduction 20% pay 80%
4-5 years – reduction 40% pay 60%
5-6 years – reduction 60% pay 40%
6-7 years – reduction 80% pay 20%

Question 2

Taper relief – how it works

Answer 2

1) Deduct any NRB from the PET
2) Calculate 40% tax
3) Multiply the tax amount by the taper relief

Example:
£500,000 – £325,000 = £175,000
£175,000 x 40% = £70,000
£70,000 x 20% = £14,000
IHT due = £70,000 – £14,000 =  £56,000

Question 3

Valuation Rules (1)- Quoted and unquoted shares 
and securities

Answer 3

Quarter up rule!
Lowest price 174p & Highest price 186p
174p + ¼ (186-174) = 177p

Question 4

Valuation Rules (2)- Unit trusts

Answer 4

Use Managers bid price = lower of the 2 prices quoted

Question 5

Valuation Rules (3)- Life assurance policies

Answer 5

If matures on death of insured then use proceeds.

Otherwise value at OMV (open market value)

Question 6

Valuation Rules: Overseas Property

Answer 6

Value at exchange rate prevailing at date of death

Question 7

Valuation Rules: Land and buildings (tenancy rules)

Answer 7

Joint Tenant – each owns share, other person automatically inherits the remainder.

Tenants in common – Each tenant owns specified share. When dies goes to wishes in will.
Value of their half is 10% less

Question 8

Distribution Rules on Intestacy

Answer 8

Married= No issue- The estate goes wholly to the spouse

Married and Children- Spouse takes personal chattels, plus £270,000, plus a life interest (income) on half of the estate. Child/Children takes other half on reaching 18 or earlier marriage plus other half on death of spouse

Question 9

Distribution Rules on Intestacy (1)

Answer 9

Not married and children- The children will inherit everything

Not married, No children- The surviving relatives will inherit in order of parents, siblings, grandparents, uncles or aunts

Question 10

Tax Planning Matters

Answer 10

1) Leaving 10% of the baseline estate to charity reduces IHT from 40% to 36%
2) PETs should be used – take advantage of 7 year rule
3) Make use of the
- Annual Exemption
- Regular gifts out of income
- Small gifts limit
4) Anything left to civil partner/spouse is free from IHT