INHERITANCE TAX Inheritance tax is tax charged on the transfer of value made by a chargeable person on chargeable property.

Usually inheritance tax is paid on the estate of the deceased or, the gifts he makes 7 years prior to his death. Transfer of Value This is the loss in value of the donors estate due to the transfer of any capital asset. It must be a gratuitous disposition. On most but not all occasions it will be e ual to the gain by the donee. It usually takes the form of! " " #ifetime Transfers $eath Transfers

Chargeable Property This is any asset forming the estate of the deceased, which has otherwise not been exempt. Chargeable Persons %or Inheritance Tax, the following persons are chargeable! " " Individuals Trusts

!!asions of !harge Inheritance Tax can be charged in the following occasions! " " On the net assets of the donor upon his death &$eath 'state(. On non exempt lifetime gifts by the donor 7 years before his death.

Types of transfers" $uring the lifetime or on the death of an individual, the following categories of transfers may arise! " " )hargeable Transfers 'xempt transfers

#$ Chargeable transfers These are transfers which can attract inheritance tax! a. Potentially Exempt Transfers &PETs% These are lifetime transfers made by an individual to another individual. They are chargeable if death occurs with 7 years of transfer, and are exempt otherwise. b. Chargeable &ifetime Transfers &C&Ts( These become chargeable immediately after transfer. *. E'e(pt Transfers These are exempt and fall in two categories! i( 'xeptions to both death and lifetime transfers. Transfers between spouses+civil partners. ii( 'xempt lifetime transfers These include, )(all gifts" -ifts to individuals &not trusts( of upto .*/0 per donee per tax year. If more, the whole is chargeable, not only the excess. Annual E'e(ption %irst .1000 after all other exemptions is exempt. This exemption is applied to earlier transfers first and is usually applied to )#T2s first before 3'T2s to avoid wasting. Nor(al e'penditure out of in!o(e 4ince I5T is on capital items, a transfer of value will be exempt if! 6ade as part of normal expenditure 6ade out of income #eaves donor with sufficient income to maintain his standard of living. *ift in !onsideration of (arriage or !ivil partnership The exempt limits are, the first! ./,000 worth of transfers from a parent of a party to the marriage+civil partnership. .*,/00 worth of transfers from a remote ancestor or from a party to the marriage+partnership. .7,000 from any other person.

This exemption applies to the donor, per marriage+civil partnership, and is not applicable if the actual marriage+ partnership does not come to being. Charge of Inheritan!e Ta' Inheritance tax can be charged on! " " #ifetime transfers The death estate of the deceased

&ifeti(e Transfers Inheritance tax on lifetime transfers is charged on transfers made. Two types of I5T apply! " " #ifetime Tax $eath Tax

&ifeti(e Ta' This tax is paid on lifetime transfers of C&Ts. If the tax is paid by the donee, the tax is charged at +, upto the nil band li(it -./01+++ for the year /+##2#/% and at /+, on the e'!ess$ The band limit is reduced by any chargeable lifetime transfers in the previous 3 years. If the tax is paid by the donor, then the gross amount of the transfer must be calculated &the loss to the donor( which effectively translates to a higher rate of /0, of the transfer as the tax due from the donor. &)in!e it is the pri(ary liability of the donor to pay IHT1 if the e'a(iner does not state 4ho pays the ta'1 its safer to assu(e that the donor pays the ta'$%

5eath Ta' on C&Ts This is the liability of the donee$ It applies where the donor dies 7 years after the transfer. Tax is charged at +, upto the nil band li(it -./01+++ for the year /+##2#/% and at 6+, on the e'!ess$ The band limit is reduced by any chargeable lifetime transfers in the previous 3 years. $eath Tax )harged on )#T2s is reduced by a Taper relief which only applies if the donor dies more than 1 years after the transfer, and less than 7 years after the transfer.

Taper 8elief 8ates If the donor survives" -units in years% 7. 89 6 76 89 0 70 89 : 7: 89 3 Redu!tion in ta' liability /+, 6+, :+, 3+,

Taper relief can only reduce the tax to nil but not more. To get the death ta' due on the transfer1 any lifeti(e ta' paid is dedu!ted$

5eath Ta' on PET " " " ;sually paid by the donee$ Co(puted in the sa(e 4ay as in C&T There is no lifeti(e ta' if this ta' is paid$

5eath Estate The death estate of the deceased is! " " " 9ll property owned by the deceased immediately before his death added to, 9ny receipts on death &eg life assurance( , less, 9ny liabilities and any funeral expenses.

#iabilities owed by the decease ualifying for deduction from a death estate include! " " " " " $ebts incurred in good faith, and for full consideration &do not include betting( $ebts falling due periods after the death &discounted( 9ccrued expenses by the deceased before his death Taxes due on death 4pecific )harges &applied to specific assets of the estate(

%uneral expenses include, " 8easonable funeral expenses &depending on the standard of living(

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8easonable mourning expenses )ost of a tombstone

The death estate then suffers I5T at 0: upto the nil band limit, and ;0: on the excess. Transfers of unused nil<rate band Upon the death of a succeeding widow+widower+civil partner, any percentage of unused nil"rate band of the late spouse+partner might be transferred to him, following a claim by his personal representative if made within * years from the end of the month of his death. The total nil" rate band must not exceed twice the personal band limit for the year of claim. Pay(ent of IHT &iability The liability of I5T falls on! " " " " The donor or, 5is personal representative if on his death estate or, The donee in case a 3'T crystalli<es The donee incase of a death tax on a )#T.

5ue 5ates In case of lifetime tax on a )#T , the tax is due at the later of! " " 10th of 9pril after end of the year of transfer = months after the end of the month of the transfer

In case of a death estate, the tax is due on the earlier of! " " = months after the end of the month of death On the submission on the account of death by the 38&s(

In case of death tax on a )#T or a 3'T , tax is due, = months after the month of death.

Ta' planning =hy (a>e a lifeti(e transfer?

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If a PET is (ade but the donor survives for 3 or (ore year1 a de!rease of his estate suffers no IHT If a C&T is (ade and the donor survives 3 years after1 only life ti(e ta' is payable Taper relief redu!es death ta' due on C&Ts and PETs in !ase death o!!urs after . years but before 3 years$ @or assets that appre!iate over ti(e1 the earlier they are transferred1 the lesser the IHT if any$

Caveat" If the overall ta' liability -in!luding !apital gains ta'% is higher upon a transfer1 than it 4ould be in future1 a !onsideration (ight be (ade not to (a>e the transfer$

>uestion -allery " " $ecember *077 >/ &c( ?une *077 >/