Inheritance Tax presentation May 2012
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Inheritance Tax presentation May 2012

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Inheritance Tax presentation May 2012

Inheritance Tax presentation May 2012

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Inheritance Tax presentation May 2012 Inheritance Tax presentation May 2012 Presentation Transcript

  • CARTERSCHARTERED ACCOUNTANTS At Rotary Club of Kirkcaldy 15 May 2012INHERITANCE TAX PLANNING What you need to know! Stephen A Taylor CA Tax Partner
  • Why do we need to worry about Inheritance Tax?
  • Why do we need to worry about Inheritance Tax?Benjamin Franklin said, "The onlythings certain in life are death andtaxes."
  • Why do we need to worry about Inheritance Tax?Another thought on the theme ofdeath and taxes is MargaretMitchells line from her book GoneWith the Wind, 1936:"Death, taxes and childbirth!Theres never any convenient timefor any of them."
  • Why do we need to worry about Inheritance Tax?Is that entirely true?Could Inheritance Tax be viewed asa voluntary tax?
  • Inheritance Tax Rates• Threshold £325,000• Lifetime transfers 20%• Transfers on Death 40%15/05/12 @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 purposes15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • Exempt Gifts: Spouse Transfer15/05/12 @Carters Accountants LLP
  • 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 285,000 Estate IHT at 40% 114,00015/05/12 @Carters Accountants LLP
  • 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 9/10/0715/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • Potentially Exempt Transfers• Exempt if Donor survives 7 years• Tapered if death within 7 years Years between Gift and Percentage of charge at death death rate 0-3 100% 3-4 80% 4-5 60% 5-6 40% 6-7 20%15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • 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 £50,000.15/05/12 @Carters Accountants LLP
  • Wills15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • Wills• The surviving spouse or civil partner is entitled to one-third of the deceaseds 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.15/05/12 @Carters Accountants LLP
  • WillsThe children are collectively entitled to one-third of the deceaseds 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.15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • Pre-owned Assets15/05/12 @Carters Accountants LLP
  • 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 2005/0615/05/12 @Carters Accountants LLP
  • Pre-owned AssetsExample:• 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 £4,00015/05/12 @Carters Accountants LLP
  • Pre-owned AssetsExample, 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 apply15/05/12 @Carters Accountants LLP
  • 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.15/05/12 @Carters Accountants LLP
  • 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 price15/05/12 @Carters Accountants LLP
  • Business Property Relief15/05/12 @Carters Accountants LLP
  • 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 business15/05/12 @Carters Accountants LLP
  • Business Property Relief 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 company15/05/12 @Carters Accountants LLP
  • Business Property Relief• 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 spouse15/05/12 @Carters Accountants LLP
  • 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 relief15/05/12 @Carters Accountants LLP
  • 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 sale15/05/12 @Carters Accountants LLP
  • Business Property Relief• 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 transferor15/05/12 @Carters Accountants LLP
  • Agricultural Property Relief15/05/12 @Carters Accountants LLP
  • 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 horses15/05/12 @Carters Accountants LLP
  • Agricultural Property Relief – 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.15/05/12 @Carters Accountants LLP
  • Agricultural Property Relief• 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 residence15/05/12 @Carters Accountants LLP
  • Agricultural Property Relief 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 199515/05/12 @Carters Accountants LLP
  • Agricultural Property Relief• 50% Relief – In all other cases, except where transitional relief is available15/05/12 @Carters Accountants LLP
  • Agricultural Property Relief• 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)15/05/12 @Carters Accountants LLP
  • 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 death15/05/12 @Carters Accountants LLP
  • Planning• Individuals – Equalise husband and wife estates. – Gifting (Exemptions) – Tax Efficient Wills – Use of Trusts – Life Assurance Policies – Investing in exempt assets (APR/BPR)15/05/12 @Carters Accountants LLP
  • Planning• Individuals• Tax efficient investments (Loan Trusts/Discounted Gift Trust)• Spend it!• WARNING: Do not give away too much, too soon!!!!15/05/12 @Carters Accountants LLP
  • Contact • Stephen Taylor CA • Carters Accountants LLP • 01592-630055 • E-mail: stephen.taylor@cartersca.co.uk • Website: www.cartersca.co.uk • Cupar – Glenrothes - Dunfermline15/05/12 @Carters Accountants LLP