This presentation summarises the rules governing Inheritance Tax in the UK. It covers a description of the exemptions and reliefs, together with examples to illustrate practical implication.

1. Inheritance Tax
IHT
18th May 2016
Presenter: Zee Shan

2. Content:
1. Introduction to presenter
2. New developments
3. Lifetime gifts exemption
4. IHT on death
5. Exercises
6. Help & Advice
Presenter: Zee Shan

3. Disclaimer:
The contents of this seminar do not
constitute advice. We can not be held
responsible for any income or loss
suffered as a result of acting or not acting
after this seminar.
Presenter: Zee Shan

4. Introduction of the
Presenter

5. Zee Shan Bawany CTA ACCA MAAT
Tax Manager
Smartfield Accountants

6. Education
Qualification Centre
CTA (Chartered Tax Adviser) BPP Birmingham
ACCA (Association of Chartered Certified Accountants) De Montfort Uni
ATT (Association of Tax Technicians) FTC Birmingham
C & G 7407 Teacher Training Leicester College
AAT (Association of Accounting Technicians) Leicester College
BTEC National Diploma in Computing Leicester College

7. Smartfield Limited Tax Manager
Abbey Tax Plc Tax Consultant
Smith Hannah Ltd Head of Personal Tax
Leicester College Tax Lecturer
Employment

8. HobbiesHobbies

9. Hobbies

10. Hobbies

11. Hobbies

12. IHT is charged on :
a transfer of value
of chargeable property
by a chargeable person

13. Occasions of charge:
1. at death on estate value;
2. at death on lifetime gifts
within last 7 years;
3. during lifetime on certain
gifts.

14. Rate of IHT charges:
1. at death – 40%;
2. during lifetime – 20%

15. IHT NRB:
Nil Rate Band £325,000

16. From To
Threshold/nil rate
band
6 April 2009 5 April 2017 £325,000
6 April 2008 5 April 2009 £312,000
6 April 2007 5 April 2008 £300,000
6 April 2006 5 April 2007 £285,000
Inheritance Tax thresholds - from 18 March 1986 to 5 April 2017

17. New Developments
Family Home Allowance
This will be phased in from 06/04/2017 as
follows:
Tax Year 2017-18 £100,000
Tax Year 2018-19 £125,000
Tax Year 2019-20 £150,000
Tax Year 2020-21 £175,000

18. New Developments
Family Home Allowance
Individuals will be able to pass on assets
worth up to £500,000, including family
home from Tax Year 2020-21, without
paying any IHT.
For married couples and civil partners the
combined figure is £1 million.

19. New Developments
Family Home Allowance
Exception
Estate worth more than £2 million will
lose the FHA on a sliding scale basis.

20. Basic: IHT
Chargeable Person
UK domiciled individuals and trustees are
liable to IHT on transfer of their
worldwide assets.

21. Excluded property
Some assets are excluded from IHT
charge e.g. assets owned overseas by not
UK domiciled individuals.

22. Diminution in value
Value of asset transferred is always
measures as the diminution in value of
the donor’s wealth (loss to estate), not
the amount gained by the donee.

23. Diminution in value: Example
John owns 75% of an unquoted property
investment company. He gives 30% to his son.
Shareholdings on the date of the gift were
valued at:
Shareholding Value £
75% £500,000
45% £245,000
30% £125,000

24. Diminution in value: Example
Shareholding Value £
Before transfer 75% £500,000
After transfer 45% £245,000
Diminution in value £255,000

25. Exempt PET CLT
Lifetime Gifts

26. Lifetime: Exempt Gifts
There is no IHT payable on this category of
gifts during lifetime, nor at death.
Even if the death is within 7 years of
making the gift.

27. Lifetime: Exemptions
1. Small gifts exemption
2. Marriage exemption
3. Normal expenditure out of income
4. Annual exemption

28. Lifetime: Exempt Gifts
1. Small gifts exemption
Maximum £250
Per recipient
Per tax year
If limit exceeded then exemption does not
apply.
The donor can make gifts of up to £250 to any
number of recipients and they will all be exempt.

29. Lifetime: Exempt Gifts
1. Small gifts exemption
Example:
Jane gave £240 to her daughter.
Small gifts exemption applies to this gift.

30. Lifetime: Exempt Gifts
1. Small gifts exemption
Example:
Dave gave £240 to her daughter. Then 3
months later gave another £150 in the
same tax year.
Small gifts exemption will not apply to any
of the two gifts above.

31. Lifetime: Exempt Gifts
2. Marriage exemption
£5,000 by a parent
£2,500 by grandparent
£2,500 by a party to the marriage
£1,000 by anyone else

32. Lifetime: Exempt Gifts
2. Marriage exemption
Example:
Chris gave £4,000 to his grandson on his
marriage.
Only first £2,500 will qualify for marriage
exemption, the remainder of £1,500 will
be treated as a PET.

33. Lifetime: Exemptions
3. Normal expenditure out of income
Lifetime transfer will be exempt if it can be
shown that the gift:
A) is made as part of a person’s normal
expenditure out of income, and
B) does not affect the donor’s standard of
living.

34. Lifetime: Exemptions
3. Normal expenditure out of income
Gifts must be habitual with a regular
pattern of giving.
Example
School fee for a grandchild
Paid for family holidays

35. Lifetime: Exemptions
4. Annual Exemption
First £3,000 of lifetime transfers per tax year are
exempt;
It is applied chronologically to the gifts made in a
tax year;
Must be applied to the first gift each year, even if
the first gift is a PET and may never become
chargeable.

36. Lifetime: Exemptions
4. Annual Exemption (AE)
Unused AE can be carried forward one tax year
only;
Current year’s AE will be utilised first then the
brought forward one will be used.

37. Lifetime & Death: Exemptions
5. Inter spouse exemption
6. Charity exemption
7. Political party exemption

38. Lifetime & Death: Exemptions
5. Inter spouse exemption
Transfers between spouses and partners in
a registered civil partnership are exempt.
If transferee is not UK domiciled then
exemption is restricted to NRB (Nil Rate
Band).

39. Lifetime & Death: Exemptions
6. Charity exemption
Gifts to UK registered charities are exempt
from IHT, without any maximum limit.
If 10% or more of the death estate is gifted
to charity then IHT at death is reduced to
36%.

40. Lifetime & Death: Exemptions
7. Political party exemption
Gifts to qualifying political parties are
exempt from IHT, without any maximum
limit.

41. Death: Exemptions
8. NRB (Nil Rate Band)
9. Transfer of NRB to surviving spouse

42. Death: Exemptions
8. NRB (Nil Rate Band)
Current rate of NRB is £325,000.

43. Death: Exemptions
9. Transfer of NRB (Nil Rate Band) to
surviving spouse
If spouse or civil partner dies without fully
utilising the nil rate band, then the
surviving spouse is entitled to the unused
percentage of the NRB at his or her death.

44. Exempt PET CLT
Lifetime Gifts

45. PET (Potentially Exempt Transfers)
A gift by an individual
to another individual
of any asset which
causes diminution in
the value to donor’s
estate

46. PET (Potentially Exempt Transfers)
PET is exempt unless the donor dies within
7 years
of making the gift.

47. PET (Potentially Exempt Transfers)
If the donor dies within 7 years of making
the gift, then the done may need to pay
IHT on the gift received.

48. PET (Potentially Exempt Transfers)
Examples of gifts:
Cash gift
Car to daughter on obtaining a driving
licence, at third attempt.

49. Exempt PET CLT
Lifetime Gifts

50. CLT (Chargeable Lifetime Transfers)
This is a residual category, therefore gifts
which are not Exempt and PET are
considered CLT.
Transfers by an individual into a trust
(other than charitable trust) are
considered CLT.

51. CLT (Chargeable Lifetime Transfers)
CLTs are taxable at the time of gift,
if the cumulative value exceeds the
NRB (Nil Rate Band)
20% IHT Rate
if trustees agree to pay the charge
25% IHT Rate
if the donor pays the charge

52. CLT (Chargeable Lifetime Transfers)
The date of payment of lifetime IHT depends on
the date of the gift:
Date of CLT Due date of payment
6 April to 30 September 30 April in the following year
1 October to 5 April Six months after the end of
the month of the CLT

53. CLT (Chargeable Lifetime Transfers)
If the donor survives 7 years after making
the gift then there is no further IHT to pay.

54. CLT (Chargeable Lifetime Transfers)
If the donor dies within 7 years of making
the gift then there may be further IHT to
pay by the trustees.

55. Exempt PET CLT
Lifetime Gifts

56. After death

57. Gardens of paradise

58. IHT is payable at 40% on assets that
exceed the NRB, various exemptions and
reliefs.
IHT is payable within six months after
the end of the month of death.

59. Death: Reliefs
The following reliefs are available:
1. BPR (Business Property Relief)
2. APR (Agricultural Property Relief)
3. Taper Relief

60. Death: Reliefs
1. BPR (Business Property Relief)
100% relief:
Sole proprietor's business or partnership share.
Shares in an unquoted trading company.
50% relief:
Quoted shares or securities in company of which
transferor had voting control.
Land etc. owned by individual and used in partnership
in which he is a partner, or a company which he
controls.

61. Death: Reliefs
1. BPR (Business Property Relief)
Shares do not qualify if company is investment company
or company dealing in stocks and shares or land and
buildings.
Minimum period of ownership: two years (original
property) or two out of five years (replacement
property).

62. Death: Reliefs
1. BPR (Business Property Relief)
If PET becomes chargeable or additional tax is due on a CLT, two
further conditions must be fulfilled for BPR to be available.
Donee must still own the original property at the date of the donor's
death, or the donee's death if earlier.
Original property must still qualify as relevant business property at
the date of the donor's death, or the donee's death if earlier.
Conditions fulfilled if the donee disposed of the original property
but reinvested all of the disposal proceeds in replacement property
within three years of the disposal.

63. Death: Reliefs
2. APR (Agricultural Property Relief)
Relief is available against the agricultural
value of agricultural property.
Applies to property situated in EEA.
Rate of relief is 100%.

64. Death: Reliefs
3. Taper Relief
If gifts are made between three and seven
years of death, death tax is reduced by
taper relief.
Percentage of Taper Relief depends on the
period between date of gift (PET/CLT) and
death.

65. Death: Reliefs
3. Taper Relief Percentage
Period Percentage
0-3 0%
3-4 20%
4-5 40%
5-6 60%
6-7 80%

66. Deeds Of Variation
Terms of a deceased’s will can
be altered by use of a deed of
variation.

67. Deeds Of Variation
Main reasons for wishing to do this are:
- To include someone who has been left out of the will.
- To implement tax planning to reduce IHT.
Within two years of death by an instrument in writing.
Treat the rewritten will as if it had been the original will.
Applies both for IHT and CGT if the people making the
variation specify in the variation that it is to have that
effect.

68. Exercises

69. Exercise 1:
Adam died leaving behind the following to
his children:
Main residency worth £200,000
Bank balance of £10,000
Car worth £3,000
Lawnmower worth £5,000
Other small items worth £1,000
Calculate the amount of IHT payable.

70. Exercise 1:
Adam’s estate is covered by the NRB (Nil
Rate Band) of £325,000 therefore there is
no IHT payable.

71. Exercise 2:
Bob died leaving behind the following to
his wife:
Main residency worth £200,000
Bank balance of £100,000
Rental property worth £150,000
Calculate the amount of IHT payable.

72. Exercise 2:
Bob’s estate has transferred to the
surviving spouse under the inter spouse
transfers exemption, therefore IHT is not
payable.
However when the surviving spouse dies
then IHT calculation will be required.

73. Exercise 3:
Charles died leaving behind the following
to a UK registered charity:
Main residency worth £500,000
Calculate the amount of IHT payable.

74. Exercise 3:
Charles’s estate has transferred to a UK
registered charity, therefore IHT is not
payable.

75. Exercise 4:
Dave died leaving behind a gross
chargeable estate valued at £427,000 all of
which was bequeathed to his brother.
Calculate the amount of IHT payable,
assuming that Dave made no lifetime
transfers.

76. Exercise 4:
£ £
Gross chargeable estate value 427,000
NRB @ date of death 325,000
Less: Gifts <7 yrs before death _ Nil
(325,000)
Taxable amount 102,000
IHT payable @ 40% 40,800

77. Exercise 5:
Edward died on 23 April 2015 leaving a gross
chargeable estate valued at £627,560 which was
bequeathed to his sister.
Edward had made the following lifetime gifts:
1 June 2006, £18,000 to a discretionary trust
16 March 2011, £288,000 to his cousin
Calculate the IHT liability arising on Edward’s
estate and state the due date of payment.

78. Edward
IHT payable during lifetime
CLT PET
01/06/2006 16/03/2011
£ £
Transfer of value 180,000 228,000
Less: Annual exemption
Current year 2006/07 (3,000) 2010/11 (3,000)
Previous year 2005/06 b/f (3,000) 2009/10 b/f (3,000)
Chargeable amount 174,000 222,000
NRB @ date of gift - 2006/07 285,000
Less: Gifts <7yrs before this gift Nil
NRB available (285,000)
Taxable amount Nil Nil
IHT payable Nil Nil

79. IHT payable on death
Date of death: 23 April 2015
7 year before: 23/04/2008
CLT on 01/06/2006 is more then 7 years before death
therefore no IHT is payable on that, at death.
£ £ £ £
222,000 627,560
NRB @ date of death - 2015/16 325,000 325,000
Less: GCT < 7 years before gift
(16/03/2004 - 16/03/2001) -174,000
Less: GCT < 7 year before death -222,000
(23/04/2004 - 23/04/2015)
NRB available -151,000 -103,000
Taxable amount 71,000 524,560
IHT payable @ 40% 28,400 209,824
Less: Taper relief
4-5 years before death - 40% -11,360
IHT payable on death 17,040 209,824
Paid by Cousin Executor
Due date of payment 31/10/2015 31/10/2015
Estate value
23/04/2015
PET
16/03/2011

80. Succession
Planning

81. Considerations at the
time of transfer of property from
an individual to another individual
1. CGT (Capital Gains Tax)
2. VAT
3. IHT (Inheritance Tax)
4. SDLT
5. Mortgage
6. Accounting Treatment
7. Future Income
8. Subsequent Disposal

82. Practice Management Advice
Use a file naming structure
which mirrors your
hardcopy files.

83. Practice Management Advice
Create a new clients’
application form

84. Help & Advice

85. HMRC
Inheritance Tax and probate
Helpline
0300 123 1072
Help & Advice

86. Join
AAT Committee
Be at the forefront of change
Free CPD events to attend
Network with fellow accountants to share best
practice
Enhance your CV with this experience

87. Feedback
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88. The End