IHT Flashcards

Question

Taper relief rates (LCT/ PET)

Answer 1

dies 6 - 7 years after transfer = 20% of IHT payable dies 5 - 6 years = 40% of IHT payable dies 4 - 5 years = 60% dies 3 - 4 years = 80% dies within 3 years = no taper

Answer 2

Death estate

Answer 3

£325,000 **0%** IHT over a period of 7 years

Answer 4

* transfer between spouses (can transfer unused NRB) * residence NRB (£175,000) (After April 2017) resi property transferred to a direct descendent of deceased or deceased's spouse

Answer 5

Reduced by £1 for every £2 over £2m limit e.g estate is £2,100,000. **pretend** RNRB is £125,000. £100,000 over £2m so lose £50,000 RNRB. £125,000 - 50,000 = £75,000 (might be so much over £2m that lost completely)

Answer 6

Any transfers = 20% IHT (life time rate)

Answer 7

from the date of the most recent transfer

Answer 8

All of the estate above the NRB = 40% no taper relief available

Answer 9

Survivorship applies in law but still taxed! their share is included in the estate and liable to **pay tax on their share!!** (might be discounted) owned with spouse/ cp = exempt | basically same as TiC

Answer 10

donatio mortis causa (only pass seconds after death) gift with reservation (transferor continues to use/ enjoy benefit)

Answer 11

* life insurance policies *written into a trust* * pension scheme nominations (no right to them at time of death)

Answer 12

Gift subject to reservation Claim this as a PET (it could also be **taxed twice** if died within 7 years!!🚫) don't do it!!

Answer 13

If deceased died owing CGT on a taxable gain (do not pay CGT when distributing to beneficiaries inc trusts)

Answer 14

sell assets of the estate exceed market value = pay CGT on the chargeable gain (subject to exemptions)

Answer 15

sell an inherited asset at a higher value = CGT on that **gain** but can use personal allowance to reduce!! (£3,000)

Answer 16

If total estate income in the tax year is **less than £500** (from any source). No reporting or tax liability in this case. Above £500 → report and pay tax **does not include income tax rent or residuary fund which is invested to generate income**

Answer 17

From income made from residuary fund investments at basic rate = 20% dividends = 8.75% no exemption/ allowance!!

Answer 18

On the income received form the estate (investments) can get a tax credit for income tax aready paid by PRs

Answer 19

Immediately unless trust for disabled person

Answer 20

Recalculate tax rate so it is based on the death rate (i.e. 40% minus any taper) (credit for 20% life rate already paid)

Answer 21

If death caused value of asset to increase or decrease, that is taken into account eg life insurance - use maturity value or pension lump sum av on death

Answer 22

On death - all property was beneficially entitled to Lifetime transfers - any transaction reduced estate - inc gift or sale at undervalue

Answer 23

Death = - open market immediately before death (reductions for joint property) Lifetime = - amount estate reduced by due to transfer (pairs/related property etc)

Answer 24

one-quarter of diff between highest and lowest price, and add to lower price

Answer 25

yes only reasonable funeral costs income tax unpaid is deductible

Answer 26

0% on first £175,000 (still with NRB if unused = £325,000 0%)

Answer 27

Interest in home which lived in at some point (dwelling) Their own OR their spouses lineal descendents: 1. child/grandchild, step-children, adopted, fostered, children deceased guardian of 2. widow(er) / surviving civil partner of a lineal descent who died - unless remarried before deceased’s death (eg beneficiary predeceased - their unmarried widow) ***i.e. own or spouses lineal, or lineal’s spouse***

Answer 28

* taxed on their equal ‘share’ in survivorship property * qualifying interest in possession (certain trust property) * property subject to a reservation (ie where pretended to gift but continued enjoying)

Answer 29

‘Qualifying interest in possession’ Whole trust fund taxed as if part of estate if: 1. was entitled to either claim income or enjoy equivalent way (eg living in it); (ie an interest in possession) 2. trustees no discretion re whether would receive; AND 3. The interest is qualifying - usually because is an immediate post-death interest (IPDI) - ie interest arising out of a will e.g. - Gina left all her estate in will to executors on trust to pay income to her Rob for life, and remainder to Rose - Trustees must invest to produce income - Rob has interest to income during life, so has interest in possession

Answer 30

On death as if part of estate Even if passes to someone else on their death

Answer 31

* **Trading companies** only (ie not investments, securities, stocks, land, or property investment) * Property owned at least **two years** before transfer (can be a replacement for relevant business property so if you sell 1 interest/ asset for another = combined) If inherit from deceased spouse, deemed to have owned from date spouse acquired - only on death inheritance

Answer 32

* Qualifying business asset (land, plant machinery) * A business or interest in a business (e.g., partnership share) * Shares in an unquoted trading company * Shares in quoted trading companies **(if control is held)** must have been owned (or combined owned) for 2 years

Answer 33

Claim RNRB would have been entitled to on original property **if they had retained it** Provided: * Original property (if retained) would have qualified for RNRB (ie gave to lineal descendents/ their spouses etc); and * Downized OR if sold (eg care home) and kept assets of equivalent value - left to lineal descendents (prevents older people clinging)

Answer 34

Maintenance, education or training of child who is under 18 or older if still in edu/training Or maintenance dependent relative

Answer 35

Loss of value to estate due to transfer Usually market value Sometimes not tho - pairs/ sets of items: e.g. - pair of shoes worth £80k - one is worth £25k - loss to estate is £55k why? estate has suffered a loss = worth more together !! NB not apply if married

Answer 36

Any spouse or cp exemption Reliefs (e.g. BRP/ APR) Lifetime only exemptions: * Annual exemption (£3,000 per tax year, plus one previous year if unused) * Small gifts (£250 per person) * Normal expenditure out of income exemption

Answer 37

* part of normal expenditure; and * out of transferor’s income; and * afterwards, still had enough to maintain usual standard of living (e.g. regular payment to child at uni with living expenses)

Answer 38

* PETs look back 7 years from the date of the PET = * LCTs made 7 years before that PET could have already used up NRB = use first! You must cumulate all PETs and all LCTs made within the 7 years BEFORE the date of that PET (so before the gift itself not death) - Donor dies in 2025. - Made a PET in 2020 and another in 2019. - Also made an LCT to a trust in 2012. - To calculate IHT on the PETs, you need to know how much nil-rate band was used by the 2012 LCT. so you look back 7 years from death ... if PET was made 7 years ago... must look back **another 7** to see if any LCTs used NRB = 14!!

Answer 39

If you leave at least 10% of the net estate (after taxes, relief etc) to charity, the IHT rate on the rest of estate = from **40% to 36%**

Answer 40

HMRC may refund for tax paid (eg tapering relief means overpaid at time) Or trustees might need to pay further amount = inc to 40% on death

Answer 41

(to pay) Beneficiary and the representative (i.e. trustee/PRs) concurrently liable ❗️beneficiary of lifetime gift can be pursued if estate do not pay (secondary liability *But usually paid from estate before beneficiary receives the gift*

Answer 42

It is the average rate of IHT across the whole chargeable estate Estate rate = (Total IHT bill ÷ Total chargeable estate) × 100 Total IHT bill = the actual tax payable after exemptions, reliefs, NRB, RNRB, charity relief, etc Total chargeable estate = the value of the estate **before exemptions/NRB**, but after debts and funeral expenses

Answer 43

1. Item to beneficiary (takes an asset subject to tax) 2. How much tax is payable by instalments (e.g. property, certain unlisted shares, business assets) 3. For LCT where the recipient pays tax

Answer 44

Estate rate is the effective average rate of IHT across the chargeable estate. Calculate: IHT paid on estate (what is actually being taxed after exemptions) ÷ total chargeable estate (total value of estate) × 100. Apply that % to the **value of the relevant asset** or class of assets to find the tax attaching to that item.

Answer 45

* **estate passing** under will/intestacy * **property** beneficially **entitled** to **immediately before** death.... e.g JT/TiC BUT only up to value of assets which estate received / would have if not for negligence (basically always equal shares) * liable after 12 months if unpaid on property which deceased gave away but carried on enjoying (reservation!🚫) beneficiary who received / other survivor if survivorship also **liable in theory** *^ v rare HMRC claim from them tho* **NOT trust property** (even if qualifying interest in possession) trustees are liable. ^ and remainder beneficiaries jointly

Answer 46

Any property comprised in a settlement i.e. a trust - immediately before death (e.g. qualifying interest in possession under trust) future beneficiary also liable

Answer 47

Transferee (person transferred it to) If they don’t pay 12 months, then PR

Answer 48

Transferor (ie the estate) primarily liable **But trustees usually pay out of property given** Bcos costs more if transferor pays... Pay the loss to estate PLUS IHT payable on the transfer = loss to estate inc because PRs paid tax & the gift together (it is grossed up!)

Answer 49

**Lifetime** - trustees liable for 20% (lifetime charge) but if tax already deducted on transfer = *donor liable!!* **Death** - donor dies in 7 yars = PRs liable for 40% death rate but HMRC can go after trustes if estate cannot pay In practice = trustees pay

Answer 50

On death, the value of the transfer would be: - the amount transferred; and - IHT paid on it at the time (20%) = the transfer 'grossed up' cos tax paid (this would be a big hit to the estate - makes the transfer look bigger than acc is) ^ that is amount is **loss estate suffered** = remember this is how you calculate value on lifetime transfer!💰 THIS IS WHY TRUSTEES PAY ON LCTs because on tax already paid **counts as part of the estate** but if trustees pay the transfer is not 'grossed up' (i.e just the value of the gift not gift & tax)

Answer 51

Transferee If not paid in 12 months, PR Liability of PRs limited to extent of assets which they actually received on death (or would have if not for default - e.g. they don’t chase money owed to the estate, or they negligently allow assets to be lost)

Answer 52

Not until all IHT is paid = delay!! why - PRs still liable if distributed estate and not paid tax (liable on the aount received) can recover from beneficiaries | PETs

Answer 53

Transferor can decide (eg could say it falls on recipient of gifts) If will is silent, default is: - if property vests in PRs, payable as testamentary (administration) expense - from residue - if survivorship property - surviving joint tenant NB: liability = who is RESPONSIBLE for making sure it is paid burden = you aren’t responsible for paying - but you have the thing which is burdened from the IHT

Answer 54

transferee but if not paid 12 months, PRs even if distributed estate already!!

Answer 55

**Non-instalment option:** all due 6 months from END of month of death - interest if not paid !! e.g. died on 1 March, payable 31 September **Instalment option:** - first instalment 6 months from end of month of death - other instalments due at annual intervals - interest if late - or if land, interest due on all except first instalment

Answer 56

IHT to be paid (even tho not due until 6 months after end of month person died)

Answer 57

Pay IHT for that specific property over 10 equal annual instalments using estate rate First instalment due 6 months after end of month of death

Answer 58

1. Any **land**🏡 (e.g. home) 2. Any **business** or **interest** in a business 👨‍💼 3. Any **shares** (quoted/unquoted) which immediately before death gave control of company to deceased 📈 (i.e. over 50%) 4. **Unquoted shares** (private company) which don’t give D control if: - worth over 20k and at least 10% share value; or - HMRC satisfied requiring payment in one sum is mean!!; or - IHT amounts at least 20% IHT on whole estate

Answer 59

None if pay on due date EXCEPTION = **Land**: * intrest on each instalment other than first instalment * payment 1 = calculated on full IHT due * other payments = calculated on the remaining balance (decreases each year) If property is **sold** during instlament period, **all outstanding tax and interest payable**

Answer 60

**Disclosure of tax avoidance schemes** Require IHT schemes disclosed HMRC if main purpose is for a **tax advantage** and involves ***abnormal steps*** e.g complex trust, reservation gifts listed by HMRC

Answer 61

Allows **HMRC** impose **penalty **for abusive tax arrangements Where arrangement cannot reasonably regard as a reasonable course of action (double reasonableness) - to get tax advantage RR - ***reasonably regard reasonable***

Answer 62

exemptions then relief = no point if exemptions apply!!

Answer 63

Each persons share is part of **their estate** for IHT (so only deceased share) Step 2: surviving owner retains their half and if the deceased's share passes under will/ intestacy - they get their half too! Step 3: full spousal exemption if transferred to spouse = no IHT payable so spouse owns their orginal 50% and 50% inherited= fully exempt

Answer 64

50% of it Discount usually: - 10% comm prop - 15% resi (may be more if property v small)

Answer 65

Property is closely **connected between 2 people** (e.g spouses) - prevents undervaluation if property worth more together Value of each is decided on the value of the whole (e.g properties) then apportioned by the share they own (not valued individually because this would a reduced IHT) applies to land, shares **each spouse must actually own 1** *different from rules on pairs - applies to chattels*

Answer 66

* Discovered additional assets or liabilities * Discovered lifetime transfers * Agreement of provisionally estimated values (eg with HMRC on value of shares) * Agreement with HMRC re tax owe or tax rebate due (re deceased’s income and capital gains before death) * Sales made before deceased’s death which gave rise to IHT ‘loss relief’ claim (gift fell in value before donor death)

Answer 67

2. **Assets with fluctuating value** (eg shares and land) - If PRs had to sell for less than would have been worth on date of death (probate value) - ‘loss of sale relief’ can reduce IHT liability here 2. ‘**Qualifying investments’** - shares or securities in quoted companies or recognised stock exchange - sold within 12 months of death for less than probate value - sale price can be used as probate value and IHT reduced accordingly - must apply (not automatic) - only applicable when it is **PR** (not beneficiary) who sells

Answer 68

PR remains personally liable Consider retaining enough assets to pay IHT if this happened

Answer 69

If unpaid by donee in 12 months after end of month when donor died Limited to amount of deceased’s assets which they have received or would have received if not for own neglect/fault above also apply if reservationary interest retained by testator (we know this) Consider ***retaining enough in estate*** to cover in case this happens

Answer 70

Once all variations to accounts are known and reliefs quantified, report corrective account to HMRC (ie all outstanding matters)

Answer 71

Request CERTIFICATE OF CLEARANCE from HMRC Releases all persons from further liability to IHT (unless fraud etc) HMRC must be satisfied IHT re a CHARGEABLE TRANSFER has or will be paid

Answer 72

Immediately following death From 6 April before death (start of tax year) and ending with date of death even if died during the income tax year, can still claim reliefs and allowances would have been entitled to if survived the whole year e.g personal allowance, marriage, dividend

Answer 73

Tax owed = deductible from amount of IHT (bc it is a liability and IHT is calculated on net estate) Any tax refund will increase size of estate for IHT (bc an asset)

Answer 74

Income tax On any income paid into estate DURING the administration (eg if property let out to tenants who continue to pay rent to the estate)

Answer 75

Dividends - 8.75% Other income - 20% Do not pay at higher rate But do not benefit from allowances (eg personal allowance)

Answer 76

Only income of the estate is interest which **does not exceed £500** That money will go to the relevant beneficiary instead (eg interest on a bank account)

Answer 77

for interest PAID on a bank loan if needed that loan needed to be able to pay IHT (which needed to obtain grant)

Answer 78

If they receive remaining net income from estate once PRs have settled the tax on their end = becomes part of beneficary's income NB they will receive credit if the tax declared already been paid by PRs (more tax/ refund depneds on their own income)

Answer 79

not payable on death (wipes out gains accrued during deceased’s lifetime) **only if PRs make a disposal** (but even then, they acquire at probate value instead of value deceased originally purchased for) *if PRs transfer assets to beneficiaries, they do not make a disposal*

Answer 80

**24%!** on all (normall 18% for basic rate and 24% for higher rate tax payers)

Answer 81

**annual exemption** = 3,000 ^ in tax year of death and f**or the 2 following tax years** ONLY (if admin lasts this long) (so if died in 2025, also use in 2026/27) can also deduct: - **acquisition cost** (ie probate value) - **incidental costs** of disposal - proportion of f**ees for valuing estate**

Answer 82

Market value on date of death i.e. probate value

Answer 83

If PRs sell for less than probate value, they make a loss. If sell for more, capital gain

Answer 84

Can off set losses against **gains made in same** or any **future tax year in administration period** = 6-5 April If already set against all gains, consider: * Selling other assets (so can offset against this gain) * Transferring property to beneficiaries: acquire assets at the probate value (the market value at the date of death), regardless of the actual value when transferred to them... The estate is treated as disposing of the asset at its current market value when passing it to beneficiaries. ***value fallen since death = loss = offset against gains*** sold more than PB value = CGT gain sell it less than PB value = CGT loss (offset against other their gains not the estate)

Answer 85

Must always calculate and pay for each income tax year in administration period but can **make informal payment w/o need to provide tax return** unless is a COMPLEX ESTATE (need to do a return) i.e. 1. value of whole estate is over £2.5 mil; or 2. OVER 10k tax due for whole administration period; or 3. proceeds from assets sold in a tax year exceed 500k

Answer 86

Income tax and CGT usually one lump sum at end of administration period (unless estate is complex) CGT on resi = 60 days of completion

Answer 87

For approval of residuary beneficiaries Done at end of administration Shows: - assets of estate - payment of debts - admin expenses/legacies - any interim payments - balance for residuary bens

Answer 88

If there is a life or minority interest bcos the different interests of the beneficiaries in capital and income need to be distinguished throughout period of trust and when it ends

Answer 89

Probate value (market value date of death) remember no CGT payable on transfer from PRs to beneficiary - beneficiary will just be liable for CGT if they sell

Answer 90

Yes Will be a secured debt (against the property) Entitled to be paid £275k from proceeds of sale of house

Answer 91

BEFORE * Use the annual exemption only for the year of disposal * Unused exemptions from previous years cannot be carried forward * BUT can use the allowance for year of death and 2 years after

Answer 92

Altered estate takes effect from death so may have to recalculate eg if increases amount going to spouse - more spousal exemption

Answer 93

**Disclaimer:** Beneficiary refuses the gift → treated as if they never became entitled Gift passes under will/intestacy No IHT charge on disclaim (only taxed on testator’s death) **Variation:** Beneficiary redirects gift to someone else. * within 2 years of death * writing * signed by all effected parties * not for money (consideration) * includes s.142 IHTA statement = it is read back into the will. ***Treated as if testator made the gift → no extra IHT.*** No s142 = treated as if beneficiary made lifetime gift!! (s142 is like the estate made the gift) no s142 & If they die within 7 years → IHT charge applies again (risk of double taxation).

Answer 94

Disclaimer or variation treated like part of original will - i.e beneficiary redirects the gift / doesn't want it Conditions - disclaimer or variation must be: 1. in writing and signed by original beneficiary; 2. within 2 years of DEATH; and 3. not for monetary consideration. AND if VARIATION, **must state s 142 IHTA applies (!!!!)** If more IHT payable due to variations, **PRs must be party to the written variation = sign it**

Answer 95

Read back into will Same requirements as for IHT (writing/signed by ben, no monetary consideration, made within 2 years) **No disposal** = so no IHT

IHT Flashcards

(119 cards)