What are immediately chargeable transfers (ICTs)?
Lifetime transfers that are taxed when made (e.g. transfers into certain trusts).
What are potentially exempt transfers (PETs)?
Lifetime gifts to individuals that become exempt if the donor survives 7 years; if the donor dies within 7 years, they become chargeable.
How does taper relief work for lifetime transfers?
It reduces the tax payable (not the gift value) if death occurs within 3–7 years, after the nil-rate band is exceeded:
- 0–3 years: 40%
- 3–4: 32%
- 4–5: 24%
- 5–6: 16%
- 6–7: 8%
- 7+: 0%
How do lifetime transfers interact with the nil-rate band?
Gifts within 7 years are taxed first and use up the nil-rate band before the death estate.
What are the IHT thresholds and rates on death?
£325,000 nil-rate band; excess taxed at 40%.
What is the residence nil-rate band (RNRB)?
An additional £175,000 when a main residence passes to direct descendants (total possible £500,000), reduced for estates over £2 million and transferable to a spouse.
What transfers are exempt from IHT?
Transfers between spouses/civil partners, charitable gifts, political donations, gifts to housing associations, and national heritage/purpose gifts.
What is the reduced IHT rate for charitable giving?
36% if at least 10% of the estate is left to charity.
What are the main lifetime IHT exemptions?
£3,000 annual exemption (1-year carry forward), £250 small gifts, normal expenditure out of income, and marriage gifts (£5,000 parents, £2,500 grandparents, £1,000 others).
What is Business Property Relief (BPR)?
Relief reducing IHT on qualifying trading business assets after 2 years ownership:
- 100% (businesses/unlisted shares)
- 50% (controlling listed shares/certain assets)
Does not apply to investment businesses.
What is Agricultural Property Relief (APR)?
Relief reducing IHT on agricultural property (UK, Channel Islands, EEA):
- 100% or 50% depending on circumstances
- Requires agricultural use
- Applies only to agricultural value (not development value)
Can BPR and APR both apply to the same asset?
No; they cannot apply to the same value, though APR may apply first and BPR to any remaining business value.
What are key IHT anti-avoidance rules?
Gifts with reservation of benefit, lifetime gifts within 7 years, conditional gifts on death, and certain trust interests (e.g. interest in possession).
What property is included in an estate for IHT?
Property passing under will/intestacy, joint property share, gifts with reservation, certain trust interests, and nominated property.
What property is generally excluded from an estate for IHT?
Excluded property, property not owned at death, most life policies, and discretionary pension lump sums.
What is the income tax liability of personal representatives?
They pay tax on estate income at:
- 20% (savings/other)
- 8.75% (dividends)
No higher rates apply; no reporting if income < £500; ISAs remain tax-free until closure or up to 3 years.
What is the CGT position for personal representatives?
CGT is payable on gains from asset sales; £3,000 annual exemption applies in the year of death and next 2 tax years; transfers to beneficiaries are not disposals.
How is CGT calculated for beneficiaries on inherited assets?
Assets are acquired at market value at death; only gains after death are taxed (e.g. £200k → £300k = £100k gain).
