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Wills and the Administration of Estates > Workshop 6: Inheritance Tax (IHT) - Exemptions and Reliefs > Flashcards

Workshop 6: Inheritance Tax (IHT) - Exemptions and Reliefs Flashcards

1
Q

What are the names of the two types of transfers IHT may arise in?

A
  1. [Failed] PET (potentially exempt transfer)
  2. LCT (lifetime chargeable transfer)
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2
Q

What are the two events (not two types of transfers) IHT may arise in?

A
  1. Lifetime transfers
  2. Death
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3
Q

Who is a PET a gift to?

A

A person

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4
Q

Who is an LCT a gift to?

A

A trust

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5
Q

TRUE OR FALSE

Exemptions and reliefs work differently to nil rate band and are not an exemption or relief

A

True

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6
Q

Can gifts of particular assets benefit from relief and have the amount of IHT payable reduced by 100%?

A

Yes

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7
Q

What are the names of common exemptions and reliefs [focused on in this module]?

A
  1. Spouse exemption
  2. Charity exemption
  3. Family maintenance exemption
  4. Annual exemption
  5. Small gifts allowance
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8
Q

What are the names of ‘additional exemptions’ and reliefs se tout in the Inheritance Tax Act 1984 (‘IHTA’)?

A
  1. Normal expenditure from income
  2. Marriage exemption
  3. Business property relief
  4. Agricultural property relief
  5. Taper relief
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9
Q

TRUE OR FALSE

All exemptions and relief apply to only lifetime transfers

A

False

Some apply only to:
- Only lifetime transfers
- Only to the death estate [and cannot be applied to a failed PET or LCT
- Both lifetime transfers and the death estate

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10
Q

What are the names of the 2 exemptions and reliefs available upon death only?

A
  1. Woodlands relief
  2. Quick succession relief
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11
Q

What are the names of the 6 exemptions and reliefs available for lifetime transfers only?

A
  1. Annual exemption
  2. Family maintenance exemption
  3. Small gifts exemption
  4. Marriage exemption
  5. Normal expenditure out of income exemption
  6. Taper relief
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12
Q

What are the names of the 4 exemptions and reliefs available for lifetime transfers and death?

There are 4 extra ones that haven’t been taught also for bonus points!

A
  1. Spouse exemption
  2. Charity exemption
  3. Business property relief
  4. Agricultural property relief
  5. Political party exemption
  6. Exemptions for gifts for national purposes or to heritage maintenance funds
  7. Exemption for gifts to EBTs
  8. Exemption for gifts to housing associations
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13
Q

What is the amount an ‘Annual Exemption (AE) allows individuals to make gifts of up to, each tax year free from IHT?

A

£3000

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14
Q

What is the maximum of AE that can be used against a transfer if no other transfer have been made in that year or previous tax year?

A

Max of x2 (£6000)

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15
Q

When does the tax year run?

A

6 Apr one year to 5 Apr the following year

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16
Q

What are the three scenairos in which a ‘family maintenance’ exmeption can be made?

A
  1. A spouse (or former spouse if part of a divorce settlement)
  2. Minor child of either party
  3. Dependent relative to make reasonable provision for their care
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17
Q

Can the maintenance exemption be used in cases where the spouse exemption would not apply, e.g., if the recipient is domiciled outside the UK?

A

Yes

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18
Q

What is the max for ‘small gifts allowance’ per recipient free from IHT?

A

£250

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19
Q

How many different people cana. transferor make use of the ‘small gifts allowance’?

A

As may people as they like

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20
Q

Can the ‘small gifts allowance’ be used in combination with other exemptions?

A

No - including the AE

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21
Q

Can both ‘small gifts allowance’ and ‘AE’ be used in the following scenario?

Transferor wants to give £3250 to one person and wants to claim AE and small gifts allowance to cover the full value

A

No

22
Q

Can both ‘small gifts allowance’ and ‘AE’ be used in the following scenario?

Transferor wants to give £3000 to one person and £250 to another and wants to claim AE and small gifts allowance to cover the full value

A

Yes

23
Q

What relief/exemption can be used if a transferor wishes to make annual transfers to multiple different people e.g., children and grandchildren?

A

Make use of the ‘small gifts allowance’

24
Q

Does the ‘small gifts allowance’ apply if the transferor gifts an amount that exceeds £250 to one person in the same tax year?

A

No

25
Q

What are the four different brackets of ‘marriage exemption’ that can be applied to different categories of people?

A
  1. £5000 max if made by a parent of one of the parties
  2. £2500 max if made by one party of the marriage to the other
  3. £2500 max if made by their remoter ancestor e.g., grandparent or great grandparent
  4. £1000 in any other case
26
Q

Who does ‘child’ include regarding the ‘marriage exemption’?

A
  • Biological child
  • Illegitimate child
  • Adopted child
  • Step child
27
Q

What does it mean when the ‘marriage exemption relief’ is said to apply per donor in respect of a marriage?

A

Each parent of both parties getting married could give £5000 to each child, claiming maximum relief of £20000

28
Q

When three conditions must be met to see the transfers of value benefit from the ‘normal expenditure out of income’ relief/exemption apply?

A
  • When made from donor’s income (not capital/savings)
  • As part of normal/regular part of giving
  • Does not affect the donor’s standard of living
29
Q

Is there an upper limit to the ;normal expenditure out of income’ exemption/relief?

A

No

30
Q

What does the ‘tape relief’ do?

A

It reduces the amount of IHT that would be otherwise payable

31
Q

What types of ‘lifetime transfers’ can benefit from the ‘taper relief’?

A
  • A failed PET
  • Where an LCT needs to be re-assessed
32
Q

Taper relief: 3-4 years before death

A

Reduction of IHT: 20%
Amount of IHT due and is now payable: 80%

And this increases (for reduction of IHT) or decreases (for amount of IHT due and is now payable) per year from 3 years

33
Q

To what extent are gifts between spouses during life and following death completely exempt under the ‘spouse exemption’?

A

Completely exempt, provided both parties are domiciled in the UK

34
Q

What is the upper limit on the ‘spouse exemption’?

A

There is none

35
Q

What exceptions give rise to unmarried couples claiming the ‘spouse exemption’?

A

None - unmarried couples cannot claim

36
Q

When does the ‘spouse exemption’ apply in the scenario of a ‘life interest trust’?

A

When they receive the life interest and are named as the ‘life tenant’

37
Q

When does the ‘spouse exemption’ not apply in the scenario of a ‘life interest trust’?

A

When they receive the remainder interest and are named the ‘remainder beneficiary’

38
Q

To what extent are transfers of gifts exempt under the ‘charity exemption’?

A

Completely, provided the gift is used exclusively for the purposes of the charity

39
Q

What requirement must the charity meet to qualify for an IHT exemption under ‘charity exemption’?

A

Come within the jurisdiction of the High Court in

  • England
  • Wales
  • Northern Ireland
  • Court of Session in Scotland
40
Q

What may also apply, in addition to the ‘charity exemption’ if a charitable gift of at least 10% of their estate is made under a will?

A

A reduced IHT may be available in respect of chargeable assets in the estate

41
Q

What is the reduction in IHT if a charitable gift is made under a will?

A

40% to 36%

42
Q

What is the purpose/effect of BPR? What does it do for IHT?

A

Reduce the value of a taxable transfer by the amount attributed to business property

43
Q

What are the four qualifying business assets under ‘BPR’?

A
  1. Unquoted shares
  2. Quoted shares
  3. Business or interest in a business
  4. Assets owned by taxpayer but used for business
44
Q

What are the extra requirements of the taxpayer’s ‘unquoted shares’ to qualify as business assets under ‘BPR’?

A

If the taxpayer controls the company (50%+)

45
Q

What is the requirement of the taxpayer regarding ‘business or interest in a business’ for the interest to qualify as a business asset under ‘BPR’?

A

The taxpayer must be a sole trader

or

have a partnership interest

46
Q

What are some examples of ‘assets owner by taxpayer but used for business’ under ‘BPR’?

A
  • Land
  • Buildings
  • Machinery
47
Q

Is it required for the taxpayer to have controlled the company or been a partner in a partnership for them to benefit from the BPR with the qualifying assets of land, building or machinery?

A

Yes

48
Q

What are the two ‘qualifying assets’ that are relieved of 100% IHT under ‘BPR’?

A
  1. Unquoted shares
  2. Business or interest in a business
49
Q

What are the two ‘qualifying assets’ that are relieved of 50% IHT under ‘BPR’?

A
  1. Quoted shares
  2. Assets owned by taxpayer but used for business purposes
50
Q

When are interest in business or shares in a company not classified as business property?

A

When the business concerned consists wholly or mainly of:

  1. Dealing in securities, stocks/shares, land or buildings
  2. Making or holding investment (incl. rental property)
51
Q

What is the qualifying period of ownership for ‘BPR’ to apply?

A

The transferor must have owned the business assets continuously for at least 2 years before the relevant transfer

52
Q

What are the three exceptions to the two-year qualifying period of ownership rule?

A
  1. If qualifying assets are sold and replaced with new qualifying assets within certain period of time
  2. If one inherits business assets following someone’s death
  3. If a person inherits business assets following death of their spouse, irrespective of how long they had been married … the survivor ‘inherits’ the period of ownership

Wills and the Administration of Estates (9 decks)

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