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Property and IHT Tax > Wills -IHT > Flashcards

Wills -IHT Flashcards

1
Q

When is IHT payable?

A

End of 6th month after death

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2
Q

IHT rates threshold and rate? Who pays it?

A

Chargeable on estates greater than £325,000 (NRB). Standard rate is 40%. Paid by executors, beneficiaries don’t usually pay.

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3
Q

Deductions before IHT is calculated?

A

Funeral expenses, reliefs (taper, NRB, RNRB), exemptions (gifts to spouse/charities, check whether life or death estate), debts, liability

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4
Q

When do chargeable transfers occur?

A

In death and in life

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5
Q

How does your domicile affect IHT?

A

If UK domiciled, IHT payable on assets all over the world. If non UK domiciled, assets are excluded (including UK ones).

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6
Q

Is expenditure for family maintenance chargeable to IHT?

A

No e.g. school fees for child (under 18), looking after dependant (incapacitated family member), you/spouse’s parents or former spouse (for their benefit, arms length negotiations, not based on court order)

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7
Q

How to measure IHT

A

Loss to the estate, not gain to the recipient

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8
Q

Related property

A

Property owned by spouse/civil partner or within the last 5 years was donated by spouse to charity, policitical/national/public bodies.

Applicable where value of transferor’s property is higher when combined with that of spouses (e.g. jewellery set).

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9
Q

How to calculate related property proportion? E.g. if 2 related properties are worth £1.5m together and £1.2m separately.

A

1.2m/1.5m = 0.96.

0.96 * 1.5m = 1,440,000

IHT is charged on 1.44m instead of 1.2m.

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10
Q

Are lifetime transfers generally chargeable?

A

No many are PETs (exempt if individual survives for 7 years)

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11
Q

What are the exempt transfers in life and death?

A

Gifts to spouse in life or death (unless spouse isn’t domiciled in UK, then first £325k).

Gifts to charities/political parties/national purposes/heritage maintenance fund (any amount)

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12
Q

What are the exempt transfers in life only?

A

Small gifts (£250) out of income, if over £250, entire amount is chargeable, as long as not used another allowance on same person.

Gifts on marriage - per marriage (not each for bride and groom), £5 to your child, £2.5k to grandchild, £1k to anyone else. Can combine with annual exemption for same person.

Regular payments (any amount) out of regular monthly income, has sufficient money left after payment.

Annual exemption

Taper relief

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13
Q

What is annual exemption?

A

£3,000 a year that’s not added to taxable estate, can carry forward unused exemption but only for 1 tax year.

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14
Q

Relief on death only

A

Woodlands (not suitable for agricultural or business relief) but woods and underwood are still growing, value of woodland excluded from estate and IHT until disposed of

Quick succession (when someone dies within 5 years of receiving a gift from someone’s estate or a less than 7 year PET and IHT was already paid, decreases 20% every year).

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15
Q

Lifetime and death relief

A

Agricultural and business

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16
Q

Business relief conditions

A

Relief is given before annual exemption, doesn’t need to be formal claims.

100% relief if sole trader/partnership and unlisted company

50% relief if: shares in quoted company (if donor has more than 50% ordinary shares/voting control)

Must be trading, must not be an investment company (e.g. professional landlord) unless investments are excepted assets (relief is available for proportion of those assets).

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17
Q

7 year rule on lifetime transfers

A

No tax is due if you live for 7 years after gift (unless gift is part of a trust).

18
Q

Immediately chargeable transfers

A

E.g. gifts to trusts (unless charitable or bare trusts -if donee survives for 7 yrs ).

Gifts to companies (very rare)

Any transfer that isn’t exempt or PET

19
Q

When is IHT payable?

A

If estate is worth more than £325k (NRB)

20
Q

Taper relief

A

If total value of gifts in 7 years before death exceeds £325k and transfer is more than 3 years old.

Gifts 3 years before death -40%
3-4 years 32%
4-5 years 24%
5-6 years 16%
6-7 years 8%

21
Q

What is a PET?

A

a gift to another individual,
a gift into a disabled trust , or
a gift into a bereaved minor’s trust on the coming to an end of an immediate post-death interest.

Exempt if donor survives for 7 years, chargeable if they don’t

22
Q

What happens if person leaves more than 10% of their estate to charity?

A

IHT reduces to 36%

23
Q

What is RNRB?

A

Nil rate band of £175,000 if family home is transferred to direct descendant (or descendant’s spouses)

24
Q

Spouses and nil rate bands

A

Surviving spouses can inherit the unused proportion of their late spouses NRB and RNRB. Based on a %, not specific amount of NRB, good in NRB increases.

25
Q

Surviving multiple spouses and NRB

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 1 full nil rate band being transferred.

26
Q

How to claim transferred nil rate band?

A

The PRs of the surviving spouse must make a claim for the TNRB in the IHT return within two years of the end of the month of death (or within three months of the PRs first acting, if this is later)

27
Q

What lifetime transfers made on or after 22 March 2006 give rise to LCT?

A

Transfer of value into a trust. Chargeable when it is made.

28
Q

IHT on trusts?

A

IHT is payable on the chargeable value of the LCT at the lifetime rate of 20%.

If the transferor survives 7 years following the LCT there is no further charge to tax.

If the transferor dies within 7 years, the LCT will be reassessed to tax at the death rate of 40%, using the NRB at the date of death.

29
Q

How is property in estate valued?

A

price it might reasonably be expected to fetch if sold on the open market immediately before the death

30
Q

What is IHT payable on death?

A

Death estate (all assets owned at death)
PETs less than 7 years
LCT less than 7 years must be reassessed (40% rate instead of 20)

31
Q

Cumulation

A

Must add up all PETs and LCTs in 7 years prior to death. Available NRB is NRB minus cumulative total

32
Q

Calculating IHT on life estate

A

Step A
Identify value transferred
Step B
Apply exemptions & reliefs
Step C
Identify chargeable value
Step D
Calculate and apply NRB
Step E
Apply rates of tax

33
Q

Calculating IHT on death estate

A

Step 1
Calculate cumulative total (apply annual exemption for year of gift and year before if unused).
Step 2
Identify assets included in the taxable estate(may need to exclude life insurance, pension and trusts)
Step 3
Value the taxable estate
Step 4
Deduct debts/expenses
Step 5
Apply exemptions & reliefs
Step 6
Apply RNRB
Step 7
Apply basic NRB and calculate tax (minus cumulation of PETs and LCTs less than 7 years)

34
Q

Property included in taxable estate

A

All jointly owned property (share is deemed to be severed immediately before death so 50%)
* Property subject to a reservation
* Donationes mortis causa
* Statutory nominations
* Some interests in possession (capital value of trust

35
Q

Property excluded from taxable estate

A

life insurance
discretionary pension

36
Q

Property subject to reservation

A

A person gives an asset away during their lifetime but reserves a benefit in that asset, the value of the asset at date of death will be included in the donor’s IHT estate when they die at the date of death.
E.g. a parent transfers legal ownership of a property e.g. a holiday cottage to their children on the condition that the donor can continue to use it whenever they wish and free of charge. The parent in this case has reserved a benefit in an asset they previously owned and on the parent’s death the value of the holiday cottage at that date will be included in their estate for IHT purposes.

Can avoid this by paying market rent, releasing gift before death, double charges relief.

37
Q

Tapering for estates exceeding £2m

A

Residential nil rate band reduces by £2 for every £1 over £2m. E.g. is property is worth £2,100,000 and RNRB is £175,000. RNRB becomes £125,000.

38
Q

What must be finalised by PRs before IHT is calculated?

A

Income tax (incl income accruing from assets) for year of death and any previous years and CGT. Returns are required by 31 January each separate tax year

39
Q

PRs and CGT

A

Liable for CGT. Annual exempt amount of £6,000 for the year if death and next 2 tax years (capital losses are set against gains, excess losses are carried forward. 20% and28% for residential property.

40
Q

When will beneficiaries need to pay CGT?

A

When they dispose of asset (compare with probate value -market value date of death)

41
Q

Taper relief

A

Property and IHT Tax (2 decks)

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