inheritance tax seminar by zee shan smartfield accountants in leicester
TRANSCRIPT
Inheritance TaxIHT
18th May 2016
Presenter: Zee Shan
Content:1. Introduction to presenter2. New developments3. Lifetime gifts exemption4. IHT on death5. Exercises6. Help & Advice
Presenter: Zee Shan
Disclaimer:The contents of this seminar do not constitute advice. We can not be held responsible for any income or loss suffered as a result of acting or not acting after this seminar.
Presenter: Zee Shan
Introduction of the Presenter
Zee Shan Bawany CTA ACCA MAAT
Tax Manager
Smartfield Accountants
EducationQualification Centre
CTA (Chartered Tax Adviser) BPP Birmingham
ACCA (Association of Chartered Certified Accountants) De Montfort Uni
ATT (Association of Tax Technicians) FTC Birmingham
C & G 7407 Teacher Training Leicester College
AAT (Association of Accounting Technicians) Leicester College
BTEC National Diploma in Computing Leicester College
Smartfield Limited Tax Manager
Abbey Tax Plc Tax Consultant
Smith Hannah Ltd Head of Personal Tax
Leicester College Tax Lecturer
Employment
HobbiesHobbies
Hobbies
Hobbies
Hobbies
IHT is charged on :
a transfer of value
of chargeable property
by a chargeable person
IHT
Occasions of charge:
1. at death on estate value;
2. at death on lifetime gifts within last 7 years;
3. during lifetime on certain gifts.
IHT
Rate of IHT charges:
1. at death – 40%;
2. during lifetime – 20%
IHT
IHT NRB:
Nil Rate Band £325,000
IHT
From To Threshold/nil rate band
6 April 2009 5 April 2017 £325,000
6 April 2008 5 April 2009 £312,000
6 April 2007 5 April 2008 £300,000
6 April 2006 5 April 2007 £285,000
Inheritance Tax thresholds - from 18 March 1986 to 5 April 2017
IHT
New Developments
Family Home Allowance
This will be phased in from 06/04/2017 as follows:
Tax Year 2017-18 £100,000Tax Year 2018-19 £125,000Tax Year 2019-20 £150,000Tax Year 2020-21 £175,000
IHT
New Developments
Family Home Allowance
Individuals will be able to pass on assets worth up to £500,000, including family home from Tax Year 2020-21, without paying any IHT.
For married couples and civil partners the combined figure is £1 million.
IHT
New Developments
Family Home Allowance
Exception
Estate worth more than £2 million will lose the FHA on a sliding scale basis.
IHT
Basic: IHT
Chargeable Person
UK domiciled individuals and trustees are liable to IHT on transfer of their worldwide assets.
IHT
Excluded property
Some assets are excluded from IHT charge e.g. assets owned overseas by not UK domiciled individuals.
IHT
Diminution in value
Value of asset transferred is always measures as the diminution in value of the donor’s wealth (loss to estate), not the amount gained by the donee.
IHT
Diminution in value: Example
John owns 75% of an unquoted property investment company. He gives 30% to his son.
Shareholdings on the date of the gift were valued at:
Shareholding Value £
75% £500,000
45% £245,000
30% £125,000
IHT
Diminution in value: Example
Shareholding Value £Before transfer 75% £500,000
After transfer 45% £245,000
Diminution in value £255,000
IHT
Exempt PET CLT
Lifetime GiftsIHT
Lifetime: Exempt Gifts
There is no IHT payable on this category of gifts during lifetime, nor at death.
Even if the death is within 7 years of making the gift.
IHT
EXEMPT
Lifetime: Exemptions
1. Small gifts exemption2. Marriage exemption3. Normal expenditure out of income4. Annual exemption
IHT
EXEMPT
Lifetime: Exempt Gifts
1. Small gifts exemption
Maximum £250 Per recipient Per tax year
If limit exceeded then exemption does not apply.
The donor can make gifts of up to £250 to any number of recipients and they will all be exempt.
IHT
EXEMPT
Lifetime: Exempt Gifts
1. Small gifts exemption
Example:
Jane gave £240 to her daughter.
Small gifts exemption applies to this gift.
IHT
EXEMPT
Lifetime: Exempt Gifts
1. Small gifts exemption
Example:
Dave gave £240 to her daughter. Then 3 months later gave another £150 in the same tax year.
Small gifts exemption will not apply to any of the two gifts above.
IHT
EXEMPT
Lifetime: Exempt Gifts
2. Marriage exemption
£5,000 by a parent£2,500 by grandparent£2,500 by a party to the marriage£1,000 by anyone else
IHT
EXEMPT
Lifetime: Exempt Gifts
2. Marriage exemption
Example:
Chris gave £4,000 to his grandson on his marriage.
Only first £2,500 will qualify for marriage exemption, the remainder of £1,500 will be treated as a PET.
IHT
EXEMPT
Lifetime: Exemptions
3. Normal expenditure out of income
Lifetime transfer will be exempt if it can be shown that the gift:
A) is made as part of a person’s normal expenditure out of income, and
B) does not affect the donor’s standard of living.
IHT
EXEMPT
Lifetime: Exemptions
3. Normal expenditure out of income
Gifts must be habitual with a regular pattern of giving.
ExampleSchool fee for a grandchildPaid for family holidays
IHT
EXEMPT
Lifetime: Exemptions
4. Annual Exemption
First £3,000 of lifetime transfers per tax year are exempt;
It is applied chronologically to the gifts made in a tax year;
Must be applied to the first gift each year, even if the first gift is a PET and may never become chargeable.
IHT
EXEMPT
Lifetime: Exemptions
4. Annual Exemption (AE)
Unused AE can be carried forward one tax year only;
Current year’s AE will be utilised first then the brought forward one will be used.
IHT
EXEMPT
Lifetime & Death: Exemptions
5. Inter spouse exemption6. Charity exemption7. Political party exemption
IHT
EXEMPT
Lifetime & Death: Exemptions
5. Inter spouse exemption
Transfers between spouses and partners in a registered civil partnership are exempt.
If transferee is not UK domiciled then exemption is restricted to NRB (Nil Rate Band).
IHT
EXEMPT
Lifetime & Death: Exemptions
6. Charity exemption
Gifts to UK registered charities are exempt from IHT, without any maximum limit.
If 10% or more of the death estate is gifted to charity then IHT at death is reduced to 36%.
IHT
EXEMPT
Lifetime & Death: Exemptions
7. Political party exemption
Gifts to qualifying political parties are exempt from IHT, without any maximum limit.
IHT
EXEMPT
Death: Exemptions
8. NRB (Nil Rate Band)9. Transfer of NRB to surviving spouse
IHT
EXEMPT
Death: Exemptions
8. NRB (Nil Rate Band)
Current rate of NRB is £325,000.
IHT
EXEMPT
Death: Exemptions
9. Transfer of NRB (Nil Rate Band) to surviving spouse
If spouse or civil partner dies without fully utilising the nil rate band, then the surviving spouse is entitled to the unused percentage of the NRB at his or her death.
IHT
EXEMPT
Exempt PET CLT
Lifetime GiftsIHT
/
PET (Potentially Exempt Transfers)
A gift by an individual to another individual of any asset which causes diminution in the value to donor’s estate
IHT
PET
PET (Potentially Exempt Transfers)
PET is exempt unless the donor dies within
7 yearsof making the gift.
IHT
PET
PET (Potentially Exempt Transfers)
If the donor dies within 7 years of making the gift, then the done may need to pay IHT on the gift received.
IHT
PET
PET (Potentially Exempt Transfers)
Examples of gifts:
Cash gift
Car to daughter on obtaining a driving licence, at third attempt.
IHT
PET
Exempt PET CLT
Lifetime GiftsIHT
//
CLT (Chargeable Lifetime Transfers)
This is a residual category, therefore gifts which are not Exempt and PET are considered CLT.
Transfers by an individual into a trust (other than charitable trust) are considered CLT.
IHT
PET
CLT (Chargeable Lifetime Transfers)
CLTs are taxable at the time of gift, if the cumulative value exceeds the NRB (Nil Rate Band)
20% IHT Rate if trustees agree to pay the charge
25% IHT Rate if the donor pays the charge
IHT
PET
CLT (Chargeable Lifetime Transfers)
The date of payment of lifetime IHT depends on the date of the gift:
IHT
PET
Date of CLT Due date of payment
6 April to 30 September 30 April in the following year
1 October to 5 April Six months after the end of the month of the CLT
CLT (Chargeable Lifetime Transfers)
If the donor survives 7 years after making the gift then there is no further IHT to pay.
IHT
PET
CLT (Chargeable Lifetime Transfers)
If the donor dies within 7 years of making the gift then there may be further IHT to pay by the trustees.
IHT
PET
Exempt PET CLT
Lifetime GiftsIHT
// /
After death
Gardens of paradise
IHT is payable at 40% on assets that exceed the NRB, various exemptions and reliefs.
IHT is payable within six months after the end of the month of death.
IHT
Death: Reliefs
The following reliefs are available:
1. BPR (Business Property Relief)2. APR (Agricultural Property Relief)3. Taper Relief
IHT
Reliefs
Death: Reliefs
1. BPR (Business Property Relief)
100% relief:Sole proprietor's business or partnership share.
Shares in an unquoted trading company.
50% relief:Quoted shares or securities in company of which transferor had voting control.
Land etc. owned by individual and used in partnership in which he is a partner, or a company which he controls.
IHT
Relief
Death: Reliefs
1. BPR (Business Property Relief)
Shares do not qualify if company is investment company or company dealing in stocks and shares or land and buildings.
Minimum period of ownership: two years (original property) or two out of five years (replacement property).
IHT
Relief
Death: Reliefs
1. BPR (Business Property Relief)
If PET becomes chargeable or additional tax is due on a CLT, two further conditions must be fulfilled for BPR to be available.
Donee must still own the original property at the date of the donor's death, or the donee's death if earlier.
Original property must still qualify as relevant business property at the date of the donor's death, or the donee's death if earlier.
Conditions fulfilled if the donee disposed of the original property but reinvested all of the disposal proceeds in replacement property within three years of the disposal.
IHT
Relief
Death: Reliefs
2. APR (Agricultural Property Relief)
Relief is available against the agricultural value of agricultural property.
Applies to property situated in EEA.
Rate of relief is 100%.
IHT
Relief
Death: Reliefs
3. Taper Relief
If gifts are made between three and seven years of death, death tax is reduced by taper relief.
Percentage of Taper Relief depends on the period between date of gift (PET/CLT) and death.
IHT
Relief
Death: Reliefs
3. Taper Relief Percentage
IHT
Period Percentage
0-3 0%
3-4 20%
4-5 40%
5-6 60%
6-7 80%
Relief
Deeds Of Variation
Terms of a deceased’s will can be altered by use of a deed of variation.
Deeds Of Variation
Main reasons for wishing to do this are:
- To include someone who has been left out of the will.
- To implement tax planning to reduce IHT.
Within two years of death by an instrument in writing.
Treat the rewritten will as if it had been the original will.
Applies both for IHT and CGT if the people making the variation specify in the variation that it is to have that effect.
Exercises
Exercise 1:
Adam died leaving behind the following to his children:
Main residency worth £200,000Bank balance of £10,000Car worth £3,000Lawnmower worth £5,000 Other small items worth £1,000
Calculate the amount of IHT payable.
Exercise 1:
Adam’s estate is covered by the NRB (Nil Rate Band) of £325,000 therefore there is no IHT payable.
Exercise 2:
Bob died leaving behind the following to his wife:
Main residency worth £200,000Bank balance of £100,000Rental property worth £150,000
Calculate the amount of IHT payable.
Exercise 2:
Bob’s estate has transferred to the surviving spouse under the inter spouse transfers exemption, therefore IHT is not payable.
However when the surviving spouse dies then IHT calculation will be required.
Exercise 3:
Charles died leaving behind the following to a UK registered charity:
Main residency worth £500,000
Calculate the amount of IHT payable.
Exercise 3:
Charles’s estate has transferred to a UK registered charity, therefore IHT is not payable.
Exercise 4:
Dave died leaving behind a gross chargeable estate valued at £427,000 all of which was bequeathed to his brother.
Calculate the amount of IHT payable, assuming that Dave made no lifetime transfers.
Exercise 4:
£ £Gross chargeable estate value 427,000
NRB @ date of death 325,000
Less: Gifts <7 yrs before death _ Nil
(325,000)
Taxable amount 102,000
IHT payable @ 40% 40,800
Exercise 5:
Edward died on 23 April 2015 leaving a gross chargeable estate valued at £627,560 which was bequeathed to his sister.
Edward had made the following lifetime gifts:
1 June 2006, £18,000 to a discretionary trust
16 March 2011, £288,000 to his cousin
Calculate the IHT liability arising on Edward’s estate and state the due date of payment.
Edward
IHT payable during lifetime
CLT PET01/06/2006 16/03/2011
£ £Transfer of value 180,000 228,000 Less: Annual exemption Current year 2006/07 (3,000) 2010/11 (3,000) Previous year 2005/06 b/f (3,000) 2009/10 b/f (3,000) Chargeable amount 174,000 222,000
NRB @ date of gift - 2006/07 285,000 Less: Gifts <7yrs before this gift Nil NRB available (285,000)
Taxable amount Nil Nil
IHT payable Nil Nil
IHT payable on death
Date of death: 23 April 20157 year before: 23/04/2008
CLT on 01/06/2006 is more then 7 years before death therefore no IHT is payable on that, at death.
£ £ £ £222,000 627,560
NRB @ date of death - 2015/16 325,000 325,000Less: GCT < 7 years before gift(16/03/2004 - 16/03/2001) -174,000
Less: GCT < 7 year before death -222,000(23/04/2004 - 23/04/2015)NRB available -151,000 -103,000Taxable amount 71,000 524,560
IHT payable @ 40% 28,400 209,824Less: Taper relief 4-5 years before death - 40% -11,360
IHT payable on death 17,040 209,824
Paid by Cousin ExecutorDue date of payment 31/10/2015 31/10/2015
Estate value23/04/2015
PET16/03/2011
SuccessionPlanning
Considerations at the time of transfer of property from an individual to another individual
1. CGT (Capital Gains Tax)2. VAT3. IHT (Inheritance Tax)4. SDLT5. Mortgage6. Accounting Treatment7. Future Income8. Subsequent Disposal
Practice Management Advice
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Practice Management Advice
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Help & Advice
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