Summary
Summary SQE2 - Wills (Tax)
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IHT - Lifetime transfers - Potentially exempt transfers - Exemptions - Reliefs - IHT returns Income tax CGT - Reliefs
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1) IHTWhat lifetime transfers are immediately chargeable?
Overall the first £325,000 of the estate, lifetime gifts and transfers into trust funds will not be
charged IHT (nil rate band). However, any amount above this threshold will be charged 40%
IHT and paid to individuals (not corporations) and PRs. It must be paid 6 months after the
end of the month of T’s death (in certain circumstances, the person liable to pay the tax may
opt to do so in 10 equal annual instalments).
The person can also make payments before they know the exact amount of IHT owed by the
deceased’s estate, which are known as ‘payments on account’. HMRC will charge interest on
the amount outstanding if the taxpayer does not pay IHT in full by the due date, or if the
taxpayer pays by annual instalments.
The estate will include property subject to reservation, passing under T’s will/intestacy,
jointly owned property, nominated property, lifetime gifts made conditional on death, and
interest in possession trusts, bank accounts (including premium bonds). The estate will not
include excluded property nor property to which T is not beneficially entitled (life insurance
proceeds, pension funds, and commorientes where husband and wife are presumed to have
died at the same time).
The value of the estate will be the open market value immediately before T’s death. For land,
co-ownership will lead to 10-15% discount and spousal co-ownership will lead to no
discount. For shares, quoted shares will be valued at the lower of two values plus 25%
difference between the two values, whereas unquoted shares will be valued at market value.
For jointly owned property, if the whole value exceeds separate value, 50% of the whole
value will be used.
Debts and expenses will be reduced, including encumbrances and reasonable funeral
expenses.
Lifetime gifts and transfers into trust funds will be included.
What transfers are potentially exempt?
If Donor survives 7 years after he made transfer to Donee, it may be exempt from IHT.
What exemptions are available?
Annual exemption of £3,000 is available. Any unused balance can be carried forward to the
next year.
Small gift exemption (maximum £250) is available.
Normal expenditure from income may be exempt.
Any gifts towards marriage/civil partnership before the wedding day may be exempt. These
include £5,000 from parents, £2,500 from remoter relations, and £1,000 from non-relations.
, Other gifts exempt from IHT include charities, major political parties and public benefit gifts.
Spouse exemptions include transfers at death and lifetime transfers to T’s spouse.
Trust lifetime income going to T’s spouse will be exempt.
Residence exceeding £325,000 will be exempt from IHT (£175,000) if they pass to direct
descendants (children, grandchildren, etc).
Business property relief is applicable towards unquoted/unlisted shares in a private limited
company not traded on a recognised stock exchange like LSE, and held for over 2 years.
What reliefs are available?
Taper relief is available for transfers before T’s death.
Transfer Relief
0-3 years before T’s death 0%
3-4 years before T’s death 20%
4-5 years before T’s death 40%
5-6 years before T’s death 60%
6-7 years before T’s death 80%
+7 years before T’s death 100%
Disclaimer relief applies where Ben dies within 7 years of disclaimer, in writing (within 2
years of Ben’s death), no consideration.
Variation relief applies where Ben dies within 7 years of disclaimer, in writing (within 2
years of Ben’s death), no consideration, and Ben provides written notice to HMRC (within 6
months of variation).
How may IHT be paid?
At end of sixth month after person's death
o One whole payment
o 10 equal annual instalments
'Payments on account' - Before known amount
o Interest chargeable
What forms must be used for IHT returns?
IHT205
o Person died on or after 6 April 2011/on or before 31 December 2021; and
o Estate is unlikely to pay IHT
IHT207
o Excepted estate; and
o Person died on or after 1 September 2006
o Permanent home abroad and limited assets in England/Wales/Northern Ireland
IHT400
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