Wills 3 - IHT Flashcards
Three occasions when charged
Death -
Lifetime gifts - seven years prior. PETs
Lifetime gifts to company or trust - Immediately chargeable.
Main charging provisions
Chargeable transfer -
transfer of value made by an individual but is not an exempt transfer.
Step 1 - identify the transfer of value
Charged as if deceased had made transfer of value of estate.
Step 2 - value transferred
On death value of estate
Lifetime - reduction in estate
Step 3 - Exemptions and reliefs
Step 4 - Tax at the appropriate rate
NRB - £325,000
RNRB - £175,000
Cumulation - look at last seven years.
RNRB not available for lifetime, available in full subject to adjustments for estates over £2 million.
Step 1 - Identify transfer of value
deemed as making transfer of value immediately before death.
Estate -
all property which beneficially entitled to immediately before death.
a) property under the will or intestacy
b) property to which beneficially entitled
c) property included because of special statutory provisions
By statute
______
Beneficiary entitled to all income from trust, trust taxed as part of estate.
Qualifying interest in possession -
entitled to claim income with no discretion of trustees.
Must be before 22 March 2006.
After
IDPI - interest in possession arising on death under will or intestacy
Paid out of trust fund.
Property subject to reservation -
Gave away but did not transfer possession and enjoyment, or not entirely excluded someone from it.
If so treated as being beneficially entitled.
Outside estate -
Life assurance written in trust for named beneficiary
Pension fund to deceased family (discretionary lump).
Reversionary interest (future interest under a settlement e.g. remainder in trust) - created before 22 March 2006.
Step 2 - Find value transferred having established which assets fall within death estate.
Basic valuation -
price which property might reasonably be expected to fetch if sold in the open market immediately before death.
Jointly owned land -
Reduction of 10% (commercial)
Reduction of 15% (residential)
Higher share allowed if percentage of ownership small.
Value of asset for IHT is ‘probate value’
If death causes value to increase or decrease, change in value taken into account.
E.g. surrender and maturity value.
Quoted shares -
Stock Exchange Daily Official List
Quotes two prices.
Taker 1/4 of difference between lower and higher and add to lower price.
E.g. 102/106p - 103p
Debts -
deductible provided they were incurred for money or moneys worth.
Reasonable funeral expenses
Step 3 - Relevant exemptions and reliefs
Spouse or civil partner exemption -
exempt if passes to deceased’s spouse or civil partner under will or intestacy.
(If not domiciled in UK limit £325k).
Can elect to be treated as UK-domiciled.
Qualifying interest in possession trusts - charged as if had right to income owned the capital
Charity exemption -
exempt.
and on trusts to charity not just gifts.
BPR -
Trading in nature (not investment or land)
-Reduction of 100% -
a) business or interest in business
-company shares not listed on recognised stock exchange
-Reduction of 50%
-company shares listed on recognised stock exchange if transferor had voting contour of company immediately before transfer
-land, building, machinery or plant owned by partnership which transferors is a member or by company of which had voting control
Voting control - over 50%
Time limits - (for all)
must be owned for at least two years at time of transfer.
If from spouse under will deemed to have held when originally from that spouse.
Agricultural property relief -
agricultural value -
value of property if it were subject to a perpetual covenant prohibiting its use other than for agriculture.
Over this may qualify for BPR.
100% reduction -
transferor has right to vacant possession immediately before transfer or where property subject to a letting on or after 1 September 1995.
50% in other cases.
Owned and occupied for two years prior, or owned for seven years and occupied by someone throughout.
Step 4 - Tax at appropriate rate
NRB -
325k
Charitable rate -
36%
10% of net estate passes to charity
Usual rate - 40%
If died on or after 9 October 2007 having survived spouse, NRB is increased by unused partner NRB (subject to max increase of 100%).
RNRB -
Qualifying residential interest in a dwelling house -
Must pass to; child, grandchild or other lineal descendant of deceased outright or on certain types of trust.
Adopted, stepchildren, or where guardian.
current spouse or civil partner of deceased’s lineal descendants or
widow, widower or surviving civil partner of lineal descendant who predeceased unless remarried.
RNRB only up to value of residence.
RNRB first
Then
NRB
Then
40%
£2million or over reduced by £1 for every £2 over.
RNRB can be passed to spouse.
If downsized - PRs can still claim RNRB to which deceased would have been entitled, provided property would have qualified, and replacement sold is left to lineal descendants.
PET
Any gift made to an individual or into a disabled trust
Step 1 - Identify transfer of value -
exclude - maintenance, education or training of child under 18, or over if still full-time education or training or for maintenance of dependant relative.
Step 2 -
Find value transferred -
Usually market price
e.g. chairs worth 80k
One chair worth 25,000
Would be 55,000.
Related property rules -
value of each is appropriate portion of value of pair.
Step 3 -
Exemptions and relief
Spouse and ciivl partner or charity applies to lifetime
BPR and APR -
if at time of death BPR given on lifetime will be withdrawn unless transferee still owns business property.
Spouse and charity exemptions applied before reliefs.
Lifetime-only exemptions -
Annual exemption - £3,000.
Unused carried forward for one year only.
Current year used before previous.
Applied to first transfer if multiple.
Small gifts -
£250 or less are exempt.
Normal expenditure out of income -
Exempt if shown -
a) made as part of normal expenditure
b) made out of income
c) transferor left with sufficient income to maintain standard of living.
Gifts in consideration of marriage -
a) £5,000 by parent or party of marriage
b) £2,5000 by remoter ancestor of party to marriage
c) £1,000 in any other case.
PET -
Chargeable if dies within seven years.
Lifetime chargeable transfers
Does not fall within definition of PET.
Lifetime transfer made on or after 22 March 2006 into any trust (other than disabled) or discretionary trust to company (whether before 2006 or not)
Small gifts not available.
Exemptions applied.
0% on NRB
20% after
Transfers in last seven years reduce NRB.
Effect of death -
Re-assess.
Calculate cumulative PETs.
Any LCTs in seven years before PET being assessed (14 years before).
Any other PETs made during seven years before PET being assessed which have become chargeable.
Taper relief
Within three to four - 80%
Within four to five - 60%
Within five to six - 40%
Within six to seven - 20%
Effect of death on LCTs
Cumulative total -
a) any other LCTs made in seven years before LCT being assessed and
b) any PETs made during seven years before LCT being assessed which have become chargeable.
Not rechargeable just relevant for cumulation.
Credit given for IHT paid on LCT but if recalculated bill lower than original amount paid no tax refunded.
Liability and burden
PRs but ultimately beneficiaries with whom it vests
Estate rate -
average rate of tax applicable.
liability on death -
PRs liable to pay property which was not immediately before the death comprised in a settlement -
Includes;
a) property which vests in PRs
b) property which does not pass but is included in estate for IHT because deceased beneficiary entailed to it immediately before death.
Liability limited to value of assets received or would have received but for own neglect or default.
Beneficiaires also liable.
Settled property -
qualified interest in trust but trust vested elsewhere -
they are also concurrently liable.
Where PET -
transfereee liable, but PRs liable if tax unpaid 12 moths after end of month of death.
Liability on LCTs -
transferor primarily
Although PRs again.
If transferor pays amount of tax will be more than if trustees paid. If transferor pays loss increased by amount of tax he pays.
Burden -
If will silent -
PRs on which vests
Beneficial joint tenants on surviving joint tenant
Time for payment
Six months after end of month of death.
If not interest
Instalment option -
10 yearly instalments (equal)
6 months after end of month of death.
Aplies to
Land
Business or interest in business
Shares - control of company
Unquoted shares - do not give control if either holding sufficiently large (10% of nominal value and worth more than £20,000).
HMRC satisfied cannot be paid without hardship
IHT attributable to shares amounts to at least 20%.
No interest if paid on time
Land - interest on each instalment on amount which was oustanding for previous year.
Sale -
if sold - all tax and interest becomes payable.
PETs -
six months after end of month of dead h
LCTs -
after 5 April and before 1 October is due on 30 April in following year.
Not in dates due six months after end of month in which LCT made.
Anti-avoidance
DOTAS - Disclosure of tax avoidance schemes -
notify ot schemes
GAAR - General Anti-Avoidance Rule -
Obtaining of tax advantage main purpose (tax arrangement).
HMRC must show abusive.
may counteract and impose penalty.
