PFP
· Advice on tax efficient investments
· Advice on the tax consequences of making pension contributions
· Recognise and advice on tax planning opportunities
· Take account of the ethical dimension to tax advice and tax planning
IHT
· Describe the principles of Inheritance ...
OUTCOMES
Describe the principles of IHT
Describe the main exemptions and reliefs from IHT
Explain the consequences of lifetime transfers and deemed transfers on death
Compute IHT liabilities on lifetime transfers, and on taxpayer’s estate on death
Reconsider the incidence of IHT liabilities as a result of a taxpayer’s death within 7 years of a lifetime
transfer
Advise a taxpayer on steps to mitigate IHT liabilities
TRANSFERS OF VALUE
• Occurs when a transferor makes a disposition
- lowering the value of his/her estate
• Value of transfer = fall in value of transferor’s estate
• If transferor pays IHT, this is included as part of the gift
CHARGEABLE TRANSFERS
Transfers may be
- during person’s life
- on person’s death
Not all transfers are chargeable, e.g.
- Dispositions without gratuitous intent (e.g. business transactions) are not chargeable
- Dispositions for maintenance of transferor’s family are not chargeable
CHARGEABLE PERSONS
An individual who is domiciled in the UK is liable to IHT on all chargeable property situated throughout the
world
A non-dom is chargeable on UK situated property only
NB deemed domicile after 15 years of residence
EXEMPT TRANSFERS
Exemptions for transfers to certain transferees ><Exemptions available to the transferor
EXEMPTIONS FOR TRANSFERS MADE TO CERTAIN TRANSFEREES
Transfers to spouse or civil partner
Gifts to political parties
Gifts made to certain national bodies e.g. museums
Gifts made to charities
EXEMPTIONS AVAILABLE TO THE TRANSFEROR
Available in relation to lifetime transfers only:
1. Small gifts
Up to £250 per transferee per year
2. Normal expenditure out of income (e.g. birthday and Christmas presents)
- Must leave sufficient income to maintain normal standard of living
3.Gifts in consideration of marriage
- £5,000 if made by a parent of the bride or groom
- £2,500 if made by grandparent
- £2,500 if made by the bride to the groom or vice versa
, - £1,000 in any other case
4. Annual exemption
- £3,000 per tax year
- Carry unused amount forward for one year
POTENTIALLY EXEMPT TRANSFERS (PETs)
After applying all the exemptions, the balance of a gift will either be chargeable immediately or will
qualify as a ‘potentially exempt transfer’ (PET).
All gifts to another individual qualify as PETs (irrespective of size)
No need to inform HMRC
They are initially exempt but become chargeable only if the donor dies within 7 years of making the gift
Gifts to a trust do not qualify at PETs
RATES OF IHT
Lifetime transfers Death
£0 - £325,000 (nil-rate band) 0% 0%
£325,000 + 20% 40%
Taper relief (reduction in the tax) for PETs if donor dies within 7 years:
period between
transfer and death % tax reduction
3 years or less 0%
3 - 4 years 20%
4 - 5 years 40%
5 - 6 years 60%
6 - 7 years 80%
UNIT ACTIVITY 1
Jim gives a gift of £351,000 to his sister. What are the IHT consequences at the time of the gift? Assume no
previous gifts.
£
Chargeable transfer 351,000
Annual exemption (year of gift) (3,000)
Annual exemption (b/f) (3,000)
345,000
Potentially Exempt Transfer (PET) so no immediate IHT consequences.
What if Jim were to die within
(i) two years?
(ii) four years of the gift?
TAX ON THE ESTATE OF THE DECEASED PERSON
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