Wills - Taxation Flashcards
Occasions where IHT may be charged
a) Death
b) PET’s that’s become chargeable (PET’s made within 7 years of death)
c) LCT’s - A lifetime gift to a company or into a trust
IHT exemptions and reliefs
- Spouse or civil partner exemption
- Charity Exemption
- Business Property relief
Spouse or civil partner exemption
- Property passing to spouse or civil partner is exempt
Note: If the transferor is domiciled in the UK but the transferee is not, the level of the exemption is limited to £325,000
Charity Exemption
Property passing to charity is exempt
Business Property relief
- 100% reduction for unquoted shares
- 50% reduction for quoted shares if there’s is voting control (ability to exercise over 50% of the votes on all resolutions)
Time limit: Property must be owned for at least 2 years at the time of death
IHT tax rate
Tax Rate: 40%
What is Nil rate band and residence nil rate band
NRB
- Tax free allowance on the estate up to £325,000
- First £325,000 taxed at 0%
- Unused NRB of the deceased spouse can be added on top making it £650,000.
- Chargeable transfers made in the seven years before death will reduce this allowance.
RNRB
- £175,000 taxed at 0% if residential property given to children, grandchildren
- RNRB is used before NRB
Potentially Exempt Transfers (PET)
- Gifts that become chargeable if transferor does not survive 7 years after making the gift.
- Uses up the NRB
Annual exemption
The annual exemption applies to the first £3,000 transferred by lifetime transfers in each tax year. Any unused annual exemption may be carried forward for one year only, so that a maximum exemption of £6,000 may be available.
Lifetime chargeable transfers (LCTs)
The main example is a lifetime transfer made on or after 22 March 2006 into any trust or to a discretionary trust or company.
LCT rates
The rates of tax applicable to LCTs are:
(a) 0% on the first £325,000 (the nil rate band); and
(b) 20% on the balance of the chargeable transfer (this rate being half the rate for transfers which are chargeable on death).
Instalment option for paying IHT
The instalment option applies to:
(a) land of any description;
(b) a business or an interest in a business;
(c) shares (quoted or unquoted) which immediately before death gave control of the
company to the deceased;
(d) unquoted shares which do not give control if either:
(i) the holding is sufficiently large (a holding of at least 10% of the nominal value of the
company’s shares and worth more than £20,000); or
(ii) HMRC is satisfied that the tax cannot be paid in one sum without undue hardship; or
(iii) the IHT attributable to the shares and any other instalment option property in the
estate amounts to at least 20% of the IHT payable on the estate.
When must IHT be paid
6 months after the end of the month of death, if later interest accrues.
PR’s tax liability
- IHT
- Income (paid to the estate, dividend, rent etc)
- CGT ( if assets disposed to raise cash, in administration, PR’s rate = 20%)
