IHT

Question 1

Explain the RNRB

Answer 1

• £175,000 until April 2028
• Only available if home inherited by direct descendants
• Any remaining can be transferred to spouse
• Tapered Withdrawal on estates over £2 million - £1 for every £2

Question 2

IHT Exemptions

Answer 2

• Spousal Transfers
• Annual Exempt Amount - C/F 1 year
• Small Gifts - £250
• Normal Expenditure
• Wedding Gifts
• Gifts to Charities
• Gifts for National Benefit

Question 3

Explain the rules relating to Small Gifts Exemption

Answer 3

• Gifts upto £250
• used any number of times for different people
• gift must be outright and cannot be a gift into trust.
• Cannot be used as part of a larger gift.

Question 4

Explain Gifts from normal expenditure exemption

Answer 4

• Made as part of the transferor’s normal expenditure (regular)
• Made out of income
• Donor able to maintain their usual standard of living

Question 5

Explain Wedding Gifts Exemption

Answer 5

• Parent - £5,000
• Grand Parent - £2,500
• Gift from one member of marriage to other - £2,500
• Anybody else - £1,000

Question 6

Explain Charity Reduced Rate

Answer 6

• Donate 10% of net estate to charity
• after exemptions and NRB (Not RNRB)
• Tax at 36%

Question 7

Explain quick succession relief

Answer 7

• one person dies and leaves taxable inheritance to somebody
• If they then die within the next 5 years they qualify for reduction in tax
• before 1 year - 100% reduction
• before 2 years - 80 % etc.
• Reduction given as tax credit
• Calc:
  [Tax paid on first death x first death Estate less tax / (tax paid + estate) ] x relevant %

Question 8

What happens if 2 people die together

Answer 8

law presumes that the older one was the first to die

Question 9

Explain the Transfer of NRB

Answer 9

• Unused % can be transferred to spouse
• Not effected by remarriage
• Maximum 100% - if 2 partners die first cant have 60% and 60%
• Claimed by personal representatives on 2nd death - claimed within 2 years

Question 10

What are the IHT Reliefs

Answer 10

• Business Relief
• Agricultural Relief
• Woodlands Relief

Question 11

Explain Business Relief (IHT)

Answer 11

• has to have been owned for 2 years
• Must be:
  - a business or part of
  - shares in an unlisted company
• for 100% relief

OR
- controlling shares in a listed company
- land, buildings or machinery owned by the deceased and used in their business
- for 50% relief

Question 12

Explain Agricultural Relief

Answer 12

• Includes agricultural land, growing crops and farm buildings
• Must have been occupied for agricultural purposes for 2 years before death
• 100% for owner-occupied farms and farm tenancies
  – 50% for interests of landlords in let farmland

Question 13

Explain Woodlands Relief

Answer 13

• Applies only to the timber and not the land itself
• Defers the tax till disposal of timber

Question 14

Explain a Gift with Reservation of Benefit

Answer 14

• if the gift is not enjoyed to the exclusion or
  virtual exclusion of the donor
• treated as remaining in the estate of the donor

Question 15

Explain the Pre-Owned Asset Tax (POAT)

Answer 15

• Pay income tax on benefit from using assets at low cost/free that you previously owned or provided funds for
• Assets included:
  
  • Land (inc. housing)
  • Chattels
  • Intangible Assets - e.g life assurance policies
• Can avoid by electing for asset to be chargeable to IHT (IHT500 form)

Question 16

Explain IHT and Trusts
BAre
IIP
Disc

Answer 16

• Bare Trust - in IHT estate of beneficiary
• Transfer to Trust is PET
• IIP Trusts - est. pre March 2006 - same as bare trust
• IIP Trusts - est. Post March 2006 - CLT, Periodic and exit charges
• 2 exceptions - Trust for Vulnerable beneficiary and IPDI trusts
• Disc. Trust - CLT on creation
• Periodic 10 year charge
• Exit Charge

Question 17

Explain Immediate post-Death Interest (IPDI) Trust

Answer 17

• Created by will or intestacy
• beneficiary becomes beneficially entitled on death of settlor
• There is a chargeable transfer by the deceased unless the IIP is for the spouse
• not treated as ‘relevant property’ and so the trust will not be subject to periodic or exit charges.
• the value of the trust will form part of the life tenant’s taxable estate on their death.

Question 18

Explain the Periodic 10 year charge

Answer 18

• Occurs on each tenth anniversary of the date of creation
• The charge is at 30% of the lifetime rate (currently 20%) e.g 6%

Question 19

Explain Exit Charges

Answer 19

• if in first 10 years of creation
• x/40 * 30% of lifetime rate (20%)
• (x=number of full 3 month periods)
• After first 10 years - same rate as last periodic charge

Question 20

Types of trusts for minors (2/3)

Answer 20

• 18-25 trust
• Trusts for bereaved Minors
• A+M (No longer available)

Question 20

Explain 18-25 Trust

Answer 20

• created on death of parent
• absolute interest to beneficiary no later than age 25
• beneficiary treated as owning assets at 18 for IHT
• exit charge based on trust starting on 18th birthday

Question 21

Explain Trust for Bereaved Minors

Answer 21

• Created on death of parent
• Absolute interest at 18
• No periodic or exit charges

Question 22

When must IHT on death be paid by? what are the reporting responsibilities of executors?

Answer 22

• 6 months after death
• Need to calculate the net value of the estate
• including details of lifetime gifts
• any quick succession relief (QSR)
• Report this to HM Revenue & Customs (IHT 400)
• within 12 months of Cora’s death.

Question 23

What happens to ISAs on death?

Answer 23

• Become a continuing ISA
• Retain tax advantages
• until closed by the executors
• or the administration of the estate is completed
• otherwise the ISA provider will close the account 3 years and 1 day after death
• will still be included in estate for IHT purposes