You are previewing Inheritance Tax Made Simple.
O'Reilly logo
Inheritance Tax Made Simple

Book Description

'Inheritance Tax Made Simple' offers practical measures that you can take to reduce the burden of inheritance tax (IHT). This applies whether you are concerned about the impact on your own money and assets, or you are receiving an inheritance which may be subject to IHT or cause you to be subject to IHT. The book is divided into four parts: Part 1: An overview of inheritance tax. Part 2: Planning to reduce any IHT burden during your lifetime. Part 3: Taking measures to reduce the burden of IHT on death. Part 4: Dealing with IHT issues if you are administering an estate. Inheritance tax touches some of the most sensitive areas of any legal subject, and dealing with it can often be unduly stressful, or come at a difficult time in your life or the lives of loved ones. It is the aim of this book to be helpfully straightforward and a thorough guide to this complex area of law, and to lessen such stresses as far as is possible. --- Erratum to first edition: Point (4) on page 14 should read: "In some cases there will be a nil-rate band to transfer where the death of the first spouse occurred before 21 March 1972. Prior to 21 March 1972, if a husband or wife left assets to his or her spouse (or anyone else) those assets were taxable. If the assets exceeded the nil- rate band in force at the time, there will be no nil-rate band available to transfer. If they were less than the nil- rate band at the time, there could be a partial or entire nil-rate band to transfer."

Table of Contents

  1. Cover
  2. Publishing Details
  3. Disclaimer
  4. About the Author
  5. Abbreviations
  6. Preface
  7. Introduction
    1. Executive Overview of the Inheritance Tax Regime
  8. Part 1. A Detailed Overview of the Inheritance Tax Regime
    1. 1.1 A reminder
    2. 1.2 IHT in a nutshell (transfers of value)
    3. 1.3 The meaning of domicile
    4. 1.4 The geographical ambit of IHT
    5. 1.5 The nil-rate band and the rate of IHT
    6. 1.6 The ticking seven-year clock
    7. 1.7 Many nil-rate bands
    8. 1.8 The spouse/civil partner exemption
    9. 1.9 The transferable nil-rate band
    10. 1.10 Using up the transferable nil-rate band
    11. 1.11 Multiple transferable nil-rate bands?
    12. 1.12 Maximising the tax savings from transferable nil-rate bands
      1. 1.12.1 Consequences of making gifts
      2. 1.12.2 Survivorship clauses in wills
      3. 1.12.3 Bereaved spouses and civil partners in second marriages
    13. 1.13 Evidential issues raised by transferable nil-rate bands
    14. 1.14 More on domicile
    15. 1.15 The IHT charge on gifts (PETs and chargeable transfers)
      1. 1.15.1 Potentially exempt transfers (PETs)
      2. 1.15.2 Transfers that are PETs
      3. 1.15.3 Taper relief
      4. 1.15.4 Chargeable transfers
      5. 1.15.5 Cumulation
      6. 1.15.6 Adverse consequences of chargeable transfers and failed PETs – the 14-year rule
      7. 1.15.7 Liability for payment of tax on PETs
      8. 1.15.8 If you intend to make both PETs and chargeable transfers, which should you make first?
    16. 1.16 Exemptions (transfers that are exempt from IHT)
      1. 1.16.1 Lifetime exemptions
      2. 1.16.1.1 The annual £3,000 exemption
      3. 1.16.1.2 Small gifts of £250 or less
      4. 1.16.1.3 Regular payments out of income
      5. 1.16.1.4 Maintenance of the family
      6. 1.16.1.5 Gifts in consideration of marriage/civil partnership
      7. 1.16.1.6 Transactions not intended to confer a gratuitous benefit
      8. 1.16.2 Transfers that are exempt transfers whether lifetime or death transfers
      9. 1.16.3 Transfers that are exempt only on death (active service)
    17. 1.17 Reliefs available in respect of inheritance tax
      1. 1.17.1 Business property relief (BPR)
      2. 1.17.2 Clawback – a dangerous pitfall for a recipient of a business
      3. 1.17.3 Giving away a business you have sold or are selling
      4. 1.17.4 Agricultural property relief (APR)
      5. 1.17.5 Woodlands relief
    18. 1.18 Capital gains tax (CGT)
    19. 1.19 Associated operations
    20. 1.20 Gifts with a reservation of benefit
    21. 1.21 Pre-owned assets
    22. 1.22 Wills
      1. 1.22.1 A will only takes effect on death
      2. 1.22.2 A will takes effect over all the property owned at death
      3. 1.22.3 A will can be used to make many different types of gift
      4. 1.22.4 Residue
      5. 1.22.5 A will can be used to appoint executors and trustees
      6. 1.22.6 A will can be used to appoint guardians of minor children
      7. 1.22.7 Common misconception
    23. 1.23 Severance of tenancy
    24. 1.24 Trusts
      1. 1.24.1 Definition of a trust
      2. 1.24.2 Explanation of the concept of a trust
      3. 1.24.3 Types of trust
      4. Summary
      5. Conclusion
    25. 1.25 Valuing assets for IHT purposes
    26. 1.26 Conclusion of Part 1
  9. Part 2. Planning During Your Lifetime to Reduce the Burden of Inheritance Tax on Your Death
    1. 2.1 Evaluating relevance of tax planning
      1. 2.1.1 Situation 1: a single person who has never married or entered into a civil partnership or who is divorced
      2. 2.1.2 Situation 2: a single person who is a widow or widower or a surviving civil partner.
      3. 2.1.3 Situation 3: married or in a CP
      4. 2.1.4 Situation 4: single but living with a partner as if married or in a civil partnership
      5. 2.1.5 Planning measures
    2. 2.2 Basic tax-planning solutions
      1. 2.2.1 £3,000 Annual allowance
      2. 2.2.2 Maintenance of family, normal expenditure out of income, maintenance of dependent relatives
      3. 2.2.3 PETs
      4. 2.2.4 PETs via your spouse or civil partner
      5. 2.2.5 Evidence
      6. 2.2.6 Wills
    3. 2.3 Discounted gift schemes
    4. 2.4 Loan trusts
    5. 2.5 Making use of the CGT annual exemption of your spouse or civil partner
    6. 2.6 Using trusts to mitigate both CGT and IHT
    7. 2.7 Sale and purchase of smaller replacement home
    8. 2.8 Gifting part of your home
    9. 2.9 Severing and gifting part of your home
    10. 2.10 Commercial arrangements and the family home
    11. 2.11 Gift and leaseback of the family home
    12. 2.12 Will arrangements for couples living as partners
      1. Gift of nil-rate band to a third party
      2. Gift into nil-rate band discretionary trust with power to make loans to survivor
      3. Gift into nil-rate band discretionary trust with charge scheme
    13. 2.13 Business property: AIM/USM shares
    14. 2.14 Sheltering assets in the family business
    15. 2.15 Converting 50% BPR to 100% BPR
    16. 2.16 Maximising BPR and APR by allocating debts to non-business and non-agricultural assets
    17. 2.17 Maximising BPR and APR – the double-dip will
    18. 2.18 The ‘Family Debt Scheme’
    19. 2.19 Using trusts to mitigate IHT – three approaches
      1. 2.19.1 Transfers within your nil-rate band
      2. 2.19.2 Transfers in excess of your nil-rate band
      3. 2.19.3 Transfers into disabled trusts
    20. 2.20 Life insurance
    21. 2.21 Making wills – a must for everyone and in particular for the wealthy
    22. 2.22 Directing property into trusts when making wills (pilot trusts)
    23. 2.23 Seemingly clever strategies to avoid, as they do not work
      1. Making a modest transfer to bring about a large reduction to the estate
      2. Gifts with a reservation of benefit
      3. Sheltering assets within your company
    24. 2.24 Conclusion to Part 2
  10. Part 3. Reducing the Burden of IHT on an Inheritance
    1. Preamble
    2. 3.1 Claim exemptions and reliefs
    3. 3.2 Be aware of the tools at your disposal
    4. 3.3 Deeds of variation
    5. 3.4 Disclaimers
    6. 3.5 Transfers out of trusts
    7. 3.6 Using the tools
    8. 3.7 Redirecting to spouse/civil partner
      1. Warning
    9. 3.8 Maximising BPR and/or APR (double-dip)
    10. 3.9 Transferring growth tax-free
    11. 3.10 By-passing a generation
    12. 3.11 Giving to charities/political parties etc
  11. Part 4. Dealing With Inheritance Tax Issues on Death if You Are Administering an Estate
    1. 4.1 Brief summary of administering an estate (probate)
    2. 4.2 Important time limits and penalties for delay
      1. Six months
      2. 12 months
      3. 18 months
      4. Two years
    3. 4.3 Valuations
      1. 4.3.1 Death estates – general principles
      2. 4.3.2 Transferors and trustees
      3. 4.3.3 Market value
      4. 4.3.4 Valuations of specific types of property
    4. 4.4 Penalties for incorrect accounts
    5. 4.5 Liability to deliver accounts
      1. 4.5.1 Lifetime transfers – PETs
      2. 4.5.2 Lifetime chargeable transfers
      3. 4.5.3 Transfers on death
      4. 4.5.4 Trustees
    6. 4.6 Loss relief on sale of land
    7. 4.7 Loss of value relief on sale of shares
    8. 4.8 Quick succession relief
    9. 4.9 Liability to pay the tax
      1. 4.9.1 Person on whom liability is imposed
      2. 4.9.2 The death estate – burden of inheritance tax on gifts in wills
      3. 4.9.3 Burden of inheritance tax if there is no will (intestacy)
    10. 4.10 Dealing with the IHT 205 (2006) and IHT 400
  12. Conclusion
  13. Appendices
    1. Appendix 1: Historical rates of nil-rate bands
      1. IHTM35093 – Property redirected to the spouse or civil partner: gifts back to original beneficiaries
    2. Appendix 3: Glossary
    3. Disclaimer
    4. Also from Harriman House and Andrew Komarnyckyj