Inheritance Tax presentation May 2012


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Inheritance Tax presentation May 2012

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Inheritance Tax presentation May 2012

  1. 1. CARTERSCHARTERED ACCOUNTANTS At Rotary Club of Kirkcaldy 15 May 2012INHERITANCE TAX PLANNING What you need to know! Stephen A Taylor CA Tax Partner
  2. 2. Why do we need to worry about Inheritance Tax?
  3. 3. Why do we need to worry about Inheritance Tax?Benjamin Franklin said, "The onlythings certain in life are death andtaxes."
  4. 4. 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."
  5. 5. Why do we need to worry about Inheritance Tax?Is that entirely true?Could Inheritance Tax be viewed asa voluntary tax?
  6. 6. Inheritance Tax Rates• Threshold £325,000• Lifetime transfers 20%• Transfers on Death 40%15/05/12 @Carters Accountants LLP
  7. 7. 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
  8. 8. 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
  9. 9. Exempt Gifts: Spouse Transfer15/05/12 @Carters Accountants LLP
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. Wills15/05/12 @Carters Accountants LLP
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. Pre-owned Assets15/05/12 @Carters Accountants LLP
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. Business Property Relief15/05/12 @Carters Accountants LLP
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. 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
  35. 35. Agricultural Property Relief15/05/12 @Carters Accountants LLP
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40. Agricultural Property Relief• 50% Relief – In all other cases, except where transitional relief is available15/05/12 @Carters Accountants LLP
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. 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
  45. 45. Contact • Stephen Taylor CA • Carters Accountants LLP • 01592-630055 • E-mail: • Website: • Cupar – Glenrothes - Dunfermline15/05/12 @Carters Accountants LLP