Week 9

• • CGT and Inheritance tax are wealth taxes​
• • Inheritance tax is a tax that usually becomes payable upon death. ​
• • The tax is not generally paid by a person receiving an inheritance but actually, in most cases, the tax is paid out of the deceased’s estate, before any distributions can be made. ​
• • There have been taxes on death in the UK for many years, often described as death or estate duties.​

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• Estate  ​

  Means the total value of an individual’s goods and possessions when they die. ​
• Residence ​

  Means the country where a person lives and is generally when they are physically present in a country for more than 6 months in a tax year.​

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• Domicile ​

  Is generally accepted to be the country you consider to be home, which is often, but not always, your country of birth.​

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• Inheritance tax applies to the worldwide assets of an individual who is domiciled in the UK. ​

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  This applies even if the person is not resident in the UK for income tax purposes.​

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  If the individual is not domiciled in the UK, then inheritance tax is only charged on assets which are located in the UK.​

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• • Transfers between spouses are exempt from IHT​
• • With a married couple or civil partnership, if everything is left to the spouse or partner then no inheritance tax is due on the first death​
• • On the second death then both nil rate bands can be added together to allow £650,000 to be passed on tax-free (FA 2016)​

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• Small Gift?

  £250
• Gift from parents (marriage)?

  £5,000
• Grandparents or remote ancestors (marriage)?

  £2,500
• From Bride to Groom or vice versa (marriage)?

  £2,500
• In any other case (marriage)?

  £1000
• Annual Exemption Amount?

  £3000
• • Gifts in consideration of marriage can be used to exempt part of larger gifts.​
• • Gifts made from capital, within 7 years of death and not covered by a specific exemption, will reduce the amount of the nil rate band.​
• • Gifts and transfers amounting to normal expenditure out of income are exempt transfers and do not need to be deducted from the nil rate band.

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• • Gifts to charities, community amateur sports clubs and qualifying political parties​
• • Gifts made for national purposes to designated bodies such as museums and gifts of pre-eminent property to the nation​
• • Any unused part of the Annual Exemption can be carried forward to the following tax year but no further.​

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• Rates of inheritance tax​

  £0 to £325,000 (nil rate band)​= 0%

  £325,000 and above ​= 40%
• Main residence nil-rate band- RNRB  (from 6 April 2017)​

  Meaning that each taxpayer has additional £175,000 to add to £325,000 if they leave their main residence to children. If unused it can be transferred to a living spouse

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  If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren.​

  If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £1,000,000. 
• • Special rules on gifts made within seven years of death​
  • Any such gifts are known as Potentially Exempt Transfers or PETs.​
  • When a taxpayer dies, any PETs made within seven years of death should be deducted from the nil rate band​
  • These gifts are subject to tax on a sliding scale

  PETs can be made to:​

  • Any individual​
  • A trust for the benefit of a disable person​
  • A trust for the benefit of a bereaved minor​
• 3-4?

  20%
• 4-5?

  40%
• 5-6?

  60%
• 6-7?

  80%
• More than 7 years?

  100%
• Note that no tax is payable at all if the gift was made more than 7 years before death
• • Inheritance tax is mainly payable on an estate following the death of an individual. ​
• • There is a significant nil rate band, but the increased value of property within the UK means that many families may find there is an inheritance tax liability on the death of a homeowner. ​
• • The liability to inheritance tax can be reduced or avoided altogether by using the gift exemptions and distributing assets more than 7 years before death occurs. ​

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