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Wills > Weeks 3 and 6- IHT > Flashcards

Weeks 3 and 6- IHT Flashcards

1
Q

What are the lifetime and death IHT rates?

A

a) Nil rate band: 0%
b) Lifetime rate: 20%
c) Death rate: 40% (of value of estate above NRB+RNRB)

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2
Q

What is a ‘chargeable transfer’ for the purposes of IHT?

A

A transfer of value which is not an exempt transfer (s2(1) IHTA). A “transfer of value” is a ‘disposition’ which results in an immediate decrease in the value of the individual’s estate (s3(1) IHTA).

Includes gifts and transactions at undervalue eg selling house to fam member for less than market value.

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3
Q

When is a PET chargeable for IHT?

A

PET is not chargeable at the point it’s made. If transferor lives for 7 yrs after making PET, it is totally exempt. **If dies within 7 yrs of making PET, the PET fails and becomes chargeable at the death rate. **

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4
Q

When is a LCT chargeable for IHT?

A

When it is made, chargeable at lifetime rate. **If dies within 7 yrs of making LCT, the LCT is reassessed at the death rate. **

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5
Q

What is the cumulative total and why is it important?

A

Cumulative total = Total chargeable value of all the chargeable transfers made in the previous 7 years.

Important as it decreases the available NRB.
**Available NRB = £325,000 - cumulative total **

So includes LCTs and failed PETs

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6
Q

List the 7 steps to calculate the IHT payable on the death estate

A
  1. Calculate cumulative total
  2. Identify assets included in the taxable estate
  3. Value the taxable estate
  4. Deduct debts/expenses
  5. Apply exemptions & reliefs
  6. Apply RNRB
  7. Apply basic NRB and calculate tax
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7
Q

What is TNRB?

A

Transferable NRB: A and B are married. A dies and doesn’t use some of her NRB (i.e. cus the whole of her estate qualifies for spousal exemption). **Whatever percentage of NRB is unused can be claimed by the PRs of the surviving spouse upon the surviving spouse’s death. **

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8
Q

Can TNRB be claimed from multiple spouses?

A

Individuals who have survived more than one spouse can claim the TNRB in respect of all of them, subject to a cap of 100% of a full NRB being transferred.

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9
Q

What is the max NRB (including any TNRB) you can get?

A

£650,000

* Basic NRB: £325,000
* Max TNRB: £325,000

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10
Q

Who ultimately benefits from any NRB/TNRB?

It is important to keep this in mind for context

A

The deceased’s estate, and therefore the beneficiaries of that estate.

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11
Q

When must the PRs of a surviving spouse make a claim for TNRB?

A

Within 2 years of the end of the month of death (or within 3 months of the PRs first acting, if this is later). **NB If an individual survives more than one spouse, a separate claim must be made for each TNRB. **

If they fail to do apply by the deadline, anyone else who is liable to pay the IHT on the surviving spouse’s death can make the claim after the deadline for the PRs to claim has passed.

HMRC has discretion to extend the deadline.

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12
Q

What are the 3 conditions for RNRB?

A
  1. The deceased died on or after 6 April 2017
  2. Their death estate included a ‘qualifying residential interest’ (‘QRI’)
  3. The QRI was ‘closely inherited’ by a ‘direct descendent’
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13
Q

What is the max RNRB that can be claimed?

A

£175,000

If interest in property falls below this, available RNRB is capped at value of the property

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14
Q

The net value of an estate is £2,350,000. What is the available RNRB?

Net value = Taxable assets - debts/expenses

A

0

Because for every £2 above £2m threshold, £1 is taken away from available RNRB.

Tapered withdrawal of RNRB for net estate above £2m

Same happens where TNRB is included too - so £350k is tapered away in the same way

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15
Q

What is a QRI?

A

An interest in a residential proprty which the deceased occupied as their residence at some point during their period of ownership.

It includes property in which the deceased did not live (because they were living in other job-related accommodation) but intended to do so in in due course.

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16
Q

Can PRs nominate multiple QRIs (i.e. if deceased had 2 homes)?

A

No - must choose one

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17
Q

Who ‘closely inherits’ for the purposes of claiming RNRB?

A
  1. B of legacy (specific, residue, etc) in will
  2. B under intestacy
  3. Survivorship (eg under JT)

NB B with contingent interest does not count

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18
Q

Who is a ‘direct descendent’ for the purposes of claiming RNRB?

S8K IHTA 1984

A

1. Lineal descendents: child, grandchild, great-grandchild, etc, adopted, step-child (if parent married deceased), foster, any child for whom a guardian
2. Spouse of any lineal descendent
3. Widow(er)/Surviving cicil partner of any lineal descendent - only if they do not remarry/enter new civil partnership.

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19
Q

What is the max RNRB (including any TRNRB) that can be claimed?

A

£350,000

Basic RNRB: £175,000
Max TRNRB: £175,000

20
Q

What are the conditions for TRNRB?

A
  1. Conditions for RNRB satisfied on surviving spouse’s death
  2. Need not be the same house.
21
Q

The net value of an estate is £2,700,000. What is the available RNRB?

A

0

No RNRB can be claimed for net estates worth £2,700,000 or more

22
Q

What is the max combined NRB (i.e. NRB + RNRB) that can be claimed?

A

£1,000,000

  • Basic NRB + TNRB = £650,000
  • Basic RNRB + TRNRB = £350,000
23
Q

There are 5 groups

What assets are included in the IHT taxable estate?

A
  1. All sole and jointly owned property (whether TIC or JT)
  2. Property legal title to which is transferred away but under which deceased reserves a benefit
    * Eg: Deceased transfers **holiday home **to the kids, on the condition that the donor can continue to use it whenever they wish and free of charge.
    * Circumvention: Pay market value rent for use
  3. Donationes mortis causa
  4. Statutory nominations
  5. Some interests in possession

Add to this the necessary detail on possession trusts

24
Q

When are assets valued for IHT - general rule?

A

Market value as at date of death

25
Q

There are 3

List the assets falling outside the IHT taxable estate

A
  1. Remainder interest in a life interest trust
  2. Insurance policies written in trust for a TP
    * eg: Deceased died with insurance policy the proceeds of which are held on trust for his wife.
    * N.b: If the policy proceeds were payable to the deceased’s estate, then the amount would be included in the taxable estate.
  3. Discretionary pension scheme payments
26
Q

What is ‘related property’ and how is it valued for IHT purposes?

A

Related property is property which together forms a set. Each party’s share is valued at **their proportionate share of the combined pair. **

Eg: H owns a Han Solo action figure and W owns a chubakka action figure. **The set is worth £100,000 **but each figure on its own is only worth £20,000. Each figure is valued therefore at £50,000.

27
Q

How is jointly owned property valued for IHT purposes?

A

The value of the deceased’s share is reduced (by 10%) to reflect the difficulty of selling a share of the property rather than the whole

28
Q

Can probate legal fees be deducted from the estate for IHT purposes?

A

No - payable from estate assets but not deductible from IHT value.

29
Q

There are 2 - both are reliefs

List the exemptions and reliefs available on death only?

A
  1. Woodlands relief
  2. Quick succession relief
30
Q

There are 6 - 5 exemptions + 1 relief

List the exemptions and reliefs available for lifetime transfers only?

A
  1. Annual exemption
  2. Fam Maintenance exemption
  3. Small gifts exemption (cannot be used with AE)
  4. Marriage consideration exemption
  5. Normal expenditure out of income exemption
  6. Taper relief
31
Q

There are 4 - 2 exemptions + 2 reliefs

List the important exemptions and reliefs available on lifetime transfers and on death?

A
  1. Spousal exemption
  2. Charity exemption
  3. Business property relief
  4. Agricultural property relief
32
Q

What does the annual exemption allow?

A

You can make gifts of up to £3,000 each tax yr (April to April) free of IHT.

33
Q

What’s the max amount of annual exemption you can get for a transfer?

A

£6,000

Current tax yr + any remaining from the prev tax yr

34
Q

There are 3

What kind of maintenance payments qualify for the family maintenance exemption (s11 IHTA)?

A
  1. Payments to a spouse (or former spouse if part of a divorce settlement)
    * Only used in practice where spousal exemption doesnt apply.
  2. Payments to the minor child of either party to a marriage for maintenance, education or training, or if over 18 and otherwise in full time education or training
  3. Payments to a **dependent relative to make reasonable provision for their care. **
35
Q

What is the small gifts allowance exemption (s20 IHTA)?

A

You can make as many gifts of max £250 as you want (within a year). You can’t make multiple gifts of £250 to the same person.

36
Q

T wants to give £3,250 to B. Can T use both the annual exemption (AE) and small gifts allowance (SGA) to make it totally IHT exempt?

A

No. AE and SGA cannot be claimed in respect of the same gift. They can only both be claimed where they each concern a different gift.

37
Q

Can marriage exemption and annual exemption be claimed in respect of the same gift?

A

Yes

38
Q

What is the marriage consideration exemption?

A

A gift given in consideration of a marriage to a party of that marriage is exempt up to:
* £5,000 if made by a parent of one of the parties
NB Child’ includes an illegitimate child, an adopted child and a step-child.
£5,000 per parent
* £2,500 if made by one party of the marriage to the other
* £2,500 if made by their remoter ancestor e.g. **grandparent **or great-grandparent; and
* £1,000 in any other case

39
Q

What are the 3 conditions for the normal expenditure out of income exemption to apply?

A

A transfer of value is exempt if made:
1. from the donor’s income (not capital)
2. as part of a regular pattern of giving, and
3. does not affect the donor’s standard of living.

no max amount/limit

40
Q

Give an example of where the normal expenditure out of income exemption might apply

A

T pays the dividends he receives from his shares in X, to B.

41
Q

What are the 2 conditions for taper relief to apply?

A

2 conditions:
(1) A lifetime transfer was made 3-7 years prior to the transferor’s death (i.e. a PET has failed / LCT will be re-assessed)
(2) IHT is payable in respect of the lifetime transfer (i.e. the PET/LCT itself is above the NRB)

42
Q

Can conditional gifts come under the spousal and charity exemption?

A

Yes - provided the **condition is satisfied within 12 months of death. **

Eg: 28 day survivorship clause (c.f. intestacy rules).

43
Q

How does the spousal exemption apply to interests in life interest trusts?

A

Spousal exemption applies if B is a life tenant but NOT if a remainderman.

If the surviving spouse receives a life interest (i.e. entitlement to income generated from the trust), then spousal exemption applies in respect to the value of that trust.

If surviving spouse receives an remainder interest, spousal exemption does not apply.

44
Q

What is the spousal exemption?

A

Gifts between spouses during life and following death are **totally exempt **from IHT.

No max amount

45
Q

What is the charity exemption?

A

All immediate (remainder gifts do not count) transfers to registered charities during life and following death are exempt from IHT, provided the gift is used exclusively for the purposes of the charity.

No max amount

46
Q
A

Wills (3 decks)

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