Inheritance Tax presentation May 2012

CARTERS

CHARTERED ACCOUNTANTS

At Rotary Club of Kirkcaldy

15 May 2012

INHERITANCE TAX PLANNING

What you need to know!

Stephen A Taylor CA

Tax Partner

Why do we need to worry about Inheritance Tax?


Benjamin Franklin said, "The only things certain in life are death and taxes."


Another thought on the theme of death and taxes is Margaret Mitchell's line from her book Gone With the Wind, 1936:"Death, taxes and childbirth! There's never any convenient time for any of them."


Is that entirely true?

Could Inheritance Tax be viewed as a voluntary tax?

Inheritance Tax Rates

• Threshold £325,000

• Lifetime transfers 20%

• Transfers on Death 40%

10/04/23 @Carters Accountants LLP

Exemptions

• £3,000 Annual Exemption– Can be carried forward one year

• Exempt gifts– Charities– Community Amateur Sports clubs– Political Parties (min 2 elected MPs)– Gifts for national purposes


Exemptions

• £250 Small Gift Exemption

• Gifts on Marriage– Parent £5,000– Remoter ancestor £2,500– Party to marriage £2,500– Other person £1,000

• Regular gifts out of normal income.


Exempt Gifts: Spouse Transfer


The IHT Calculation


Assets – Liabilities £

House 400,000

Share Portfolio 175,000

Savings 60,000

Mortgage (25,000)

610,000

NRB (325,000)

Net Chargeable Estate

285,000

IHT at 40% 114,000

Transferable Nil Rate Band

• On second death, executors can claim all or part of unused NRB from first death.

• Survivor has to have been spouse/civil partner of pre deceased at time of first death.

• Applies when 2nd death happened after 9/10/07


Transferable Nil Rate Band

• Calculating NRB:

• % of NRB unused on 1st death x value of the NRB on the 2nd death.

• Re-marriage: TNRB still applies. Also applies to new spouse(s)! Limited to NRB.


Types of Lifetime Transfer

• Chargeable Lifetime Transfer

• Potentially Exempt Transfer

• CLT is immediately chargeable to tax.

• PET only liable for tax if donor fails to survive 7 years following gift.


Potentially Exempt Transfers

• Exempt if Donor survives 7 years

• Tapered if death within 7 years

Years between Gift and death

Percentage of charge at death rate

0-3 100%

3-4 80%

4-5 60%

5-6 40%

6-7 20%


Accumulation of Transfers

• IHT is a cumulative tax.

• At date of each transfer need to take into account other gifts to transfers in previous 7 years.

• Similarly, at date of death.


Dispositions/Transfer of Value

• A gift is measured by the fall in value of the transferors estate.

• Example: A set of 8 chairs worth £50,000. If I gift 4 chairs to my son and 4 to my daughter but an incomplete set is worth only £5,000/chair. Son and daughter have chairs worth £40,000 but the transfer of value was £50,000.


Wills


Wills

• Do you have one?

• If you do is it up to date?

• How often do you change it?

• Rules of intestacy would apply where no valid Will is in place.


Wills

• The surviving spouse or civil partner is entitled to one-third of the deceased's moveable estate if the deceased left children or descendants of children, or to one-half of it if the deceased left no such children or descendants.


Wills

The children are collectively entitled to one-third of the deceased's moveable estate if the deceased left a spouse or civil partner, or to one-half of it if the deceased left no spouse or civil partner. Each child has an equal claim. Where a child would have had a claim had he (she) not died before his (her) parent, his (her) descendants may claim his (her) share by the principle known as representation.


Wills

• Can a Will be changed?

• Disclaimer. Refuse to accept the legacy.

• Deed of Variation. Legacies re-directed to other beneficiaries.

• Done in writing within 2 years of death.


Pre-owned Assets


Pre-owned Assets

• Assets gifted - former owner use

• Benefit in kind charge

• Rental value or % of capital value

• De-minimis of £5,000• Charge when benefit received in or after

2005/06


Pre-owned Assets

Example:

• John gifts shares £60,000 to his son, George

• George sells shares for £100,000

• George uses £100,000 as deposit for house costing £300,000

• John lives in the house paying rent of £4,000


Pre-owned Assets

Example, cont:• Market rent, £18,000

– 18,000 x 100,000/300,000= £6,000 rental value

Chargeable amount £2,000

Note: De Minimis does not apply


Pre-owned Assets

• Example:– Parents gift holiday home in Spain to children

but continue to spend the winter months there.– Parents will be subject to a tax charge on the

“benefit” of occupying the property.


Pre-owned Assets

• No charge – ceased to be owned pre 18.3.86– property now owned by spouse– still counts as part of estate for IHT– sold at arm’s length price


Business Property Relief



100% Relief• Unincorporated businesses

• Unquoted share, including AIM shares.

• Unquoted securities that give the transferor control

• Settled Property used in the life tenants business



50% Relief• Controlling Holding of a quoted company

• Land, Buildings, Plant and Machinery used in business carried on by transferor

• Land, Buildings, Plant and Machinery used in partners partnership or controlling shareholders company



• Minimum Period of Ownership– Relief available if owned throughout the two years

immediately prior to the transfer

– If transferred property replaced other relevant property

– If the transferor became entitled to the property on the death of a spouse, relief available for any period it was owned by the spouse


Lifetime Transfers

• Business Property Relief if property;– Was relevant property at the time of transfer– Was owned by the transferee throughout the

period between the gift and death, and– Immediately before the transferors death, or

earlier death of transferee, remains eligible for business property relief



• Relief Not available– Business or company engaged wholly or mainly in

dealing in securities, shares, land or buildings, or in making or holding investments

– Business not carried on for gain

– Business or shares in a company subject to a contract for sale



• Excepted Assets– Not used wholly or mainly for the business

– Not required at the time of the transfer for identified future business use

– Used wholly or mainly for the personal benefit of the transferor or a person connected with the transferor


Agricultural Property Relief



Property must be in UK, Channel Islands or Isle of Man

– Agricultural land or pasture

– Farmhouse, cottages or buildings which are of a character appropriate to the agricultural property

– Growing crops, when transferred with the land

– Stud Farms engaged in breeding and rearing horses



– Woodlands and buildings used for the intensive rearing of livestock

– Woodlands and buildings occupied with agricultural land and the occupation is ancillary to the agricultural land

– Land and buildings used in the cultivation of short rotation coppice.



• Agricultural Value– Relief applies only to the agricultural value of

the land– It does not extend to development value

(business property relief may be available) or the additional value of a house in a desirable country residence



100% Relief• Transfers of Vacant Possession or the right to

obtain vacant possession within the next 12 months (by concession this may be extended to 24 months)

• Land let on a tenancy beginning on or after 1 September 1995



• 50% Relief– In all other cases, except where transitional

relief is available



• Minimum Period of Ownership– Occupied by the transferor for agricultural

purposes throughout the two years immediately prior to the transfer

– Owned by the transferor throughout the 7 years immediately before the transfer and has been occupied for agricultural purposes (whether by the transferor or another)


Lifetime Transfer

• Agricultural Property relief if property,– Was owned be the transferee throughout the period

between the gift and the death of the transferor, and

– Is agricultural property immediately prior to the transferors death, or earlier death of the transferee and has been occupied for agricultural purposes throughout the period between the gift and the death


Planning

• Individuals– Equalise husband and wife estates.– Gifting (Exemptions)– Tax Efficient Wills– Use of Trusts– Life Assurance Policies– Investing in exempt assets (APR/BPR)


Planning

• Individuals• Tax efficient investments (Loan

Trusts/Discounted Gift Trust)• Spend it!

• WARNING: Do not give away too much, too soon!!!!


Contact

• Stephen Taylor CA

• Carters Accountants LLP

• 01592-630055

• E-mail: [email protected]

• Website: www.cartersca.co.uk

• Cupar – Glenrothes - Dunfermline10/04/23 @Carters Accountants LLP

mailto:[email protected]

http://www.cartersca.co.uk/

Documents

Inheritance Tax presentation May 2012