Inheritance Tax presentation May 2012

1. 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

2. Why do we need to worry about
Inheritance Tax?

3. Why do we need to worry about
Inheritance Tax?
Benjamin Franklin said, "The only
things certain in life are death and
taxes."

4. Why do we need to worry about
Inheritance Tax?
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."

5. Why do we need to worry about
Inheritance Tax?
Is that entirely true?
Could Inheritance Tax be viewed as
a voluntary tax?

6. Inheritance Tax Rates
• Threshold £325,000
• Lifetime transfers 20%
• Transfers on Death 40%
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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 purposes
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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.
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9. Exempt Gifts: Spouse Transfer
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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% 114,000
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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
9/10/07
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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.
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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.
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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%
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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.
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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.
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17. Wills
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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.
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19. 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.
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20. 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.
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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.
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22. Pre-owned Assets
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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
2005/06
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24. 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
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25. 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
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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.
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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 price
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28. Business Property Relief
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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 business
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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
company
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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 spouse
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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 relief
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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 sale
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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
transferor
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35. Agricultural Property Relief
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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
horses
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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.
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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 residence
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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 1995
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40. Agricultural Property Relief
• 50% Relief
– In all other cases, except where transitional
relief is available
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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)
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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
death
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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)
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44. Planning
• Individuals
• Tax efficient investments (Loan Trusts/Discounted
Gift Trust)
• Spend it!
• WARNING: Do not give away too much, too
soon!!!!
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45. Contact
• Stephen Taylor CA
• Carters Accountants LLP
• 01592-630055
• E-mail: stephen.taylor@cartersca.co.uk
• Website: www.cartersca.co.uk
• Cupar – Glenrothes - Dunfermline
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