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Summary INHERITANCE TAX- CHEAT SHEET
INHERITANCE TAX.- CHEAT SHEET for the SQE 1 exams
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INHERITANCE TAXIHT Charged on:
1. Death Estate
2. PETs made within 7 years prior to death
3. LCTs Lifetime Gifts to a company or into a trust unless the trust is for disabled
persons
You must deal with each lifetime transfer separately, and then deal with the death
estate as a whole
Residence Nil Rate Band= £175,000 [only applied when the house is passing to a
direct descendent]
Nil Rate Band = £325,000 [applied on both lifetime transfers and death estate]
STAGES TO CALCULATE THE IHT
Step 1: Identify the transfer of Value
- Death Estate
o All property the deceased was entitled too immediately before death
Includes any joint property (just 50% of it)
o Excluded property:
Reversionary Interest
Future interest under a settlement
- PETs
- LCTs
o Includes transfers into discretionary trusts
-
Step 2: Find the Value Transferred
- Calculate all of the death estate
- Calculate PETs and LCTs – these will reduce the NRB
Step 3: Apply any Relevant Exemptions and Reliefs
Death Estate and Lifetime Gifts:
EXEMPTION APPLICABLE WHEN? RELIEF
Spouse/Civil Partner Spouses can transfer 100%
unlimited amount between
themselves
Charity Exemption Any gifts to charity are 100%
always exempt
Business Property Relief Held by the 100% or 50% relief if you
(BPR) deceased/transferor hold majority shares in a
for at least 2 years quote company
Unquoted = 100% exempt Be unquoted shares
, always Note: if transferor dies within
Ltd company = unquoted 7 years and the receiver of
the shares has sold them,
Quoted = 50% exempt IF BPR is lost and IHT is
it’s a controlling share (i.e. payable
51%)
Plc=quoted
Lifetime Gifts Only:
EXEMPTION APPLICABLE WHEN? EXEMPT/RELIEF?
Annual Exemption Transfer £3,000 IHT fee + £3,000 or £6,000 exempt
exemption can be carried from IHT
over for one tax year if
not used = £6,000
Marriage Exemption - Parent can gift 100% exempt to the
Receiver must be in the £5,000 to their amount
marriage child
- £2,500 from
grandparent to
grandchild/great
grand child
- £1,000 to any
other person
Normal Expenditure of As long as the gift(s) 100% exempt
Income leaves you with sufficient
income to maintain your
normal standard of living.
Vary due to earnings
Small Gifts Exemption Unlimited amount of gifts £250 gift exempt from IHT
up to £250 as long as not – if more than £250 then
given to the same person entire amount is subject
in the same tax year to IHT
When owing a house as beneficial joint tenants – the deceased will be entitled to half
the value of the property immediately before death less a discount of up to 15% =
does not apply to joint owners who are married.
TAPERING: application to PETs and LCTs
Tapering relief is available if the transferor survives more than 3 years after the
transfer, tax is reduced:
1. Transfers within 3 to 4 years before death: 80%
2. Transfers within 4 to 5 years before death: 60%
3. Transfers within 5 to 6 years before death: 40%
4. Transfers within 6 to 7 years before death: 20%
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