REVENUE LAW - LECTURE
NOTES - INHERITANCE TAX
Inheritance Tax
Exclusions and Exemptions
Inheritance Tax is not chargeable
where:
(a) Transferor is exempt;
(b) Transfer is exempt;
(c) Property transferred is excluded property (see below);
(d) Disposition is not a transfer of value.
(a) Exempt Transferors
Diplomatic Agents - Diplomatic Privileges Act 1964
Staff of International Organisations - International Organisation Act 1968
Consular Officers - Consular Relations Act 1968.
(b) Exempt Transfers
(i) Transfers between spouses/civil partners s 18 - Spouses anywhere in
tax legislation is also including civil partners
Unlimited except where recipient not domiciled in UK in which case exemption
restricted to £55,000 (increased to a lifetime limit of the nil rate band in 2013-
14).
Stop the use of channelling through a non-UK domiciled partner. To
children etc. Going up to the nil rate band. We will be examined on it
however in the 2012/2013 not the future.
NB: Spouse does not include an ex-spouse/ex Civil Partners but see (d)(ii)
below - Dispositions for Maintenance of the Family.
(ii) Annual Exemption, s 19 (Lifetime only)
First £3,000 of transfers in a year of assessment are exempt, s 19(1).
Earlier transfers receive the exemption first, even PETS (this may waste the
exemption - make any CTs first in the year) except where transfers take place
on the same day, in which case the a.e. is allocated pro rata s 19(3)
If you make a transfer to another individual in your lifetime that is not exempt
for other reasons the bit that’s covered by the annual exemption is not the
PETs part. So 100k has ti be divided into 3k exempt and 97k PET. The annual
exemption isn’t available for the subsequent transfer because the PET has
taken it. This might be a waste of the PET might not turn out to be chargeable
at all. So if making to gifts in a year make the chargeable transfer first
because it will get the annual transfer. Don’t waste it on a transaction which
might end up being exempt in the end if it makes the seven years.
, Carry forward of unused exemption for one year s 19(2). In allocating
exemptions, the current year’s exemption must be given before the carried
forward exemption.
You use the annual exemption from that year first only then can you use the
roll forward annual exemption.
Eg A makes a transfer of £5,000 in year 2, having made no transfers in year
1. All the year 2 exemption is used up plus £2,000 of the exemption carried
forward from year 1. There is no exemption to carry forward to year 3, as the
exemption from year 1 (of which £1,000 has still not been used) cannot be
carried forward for more than one year.
CANNOT use year 1 first and then carry over the £1k from year 2 as it can be
carried for one year.
(iii) Small gifts exemption, s 20 (Lifetime only)
Applies to outright gifts to individuals provided the value of the gift to each
individual does not exceed £250 in a year of assessment.
(iv) Normal Expenditure out of income, s 21 (Lifetime only)
No going into capital to make them
Has to be regular or intention to make them regularly
Must be out of income
Exempt to the extent that:
(a) it was made as part of the normal expenditure of the transferor, and
(b) taking one year with another, it was made out of his income, and
(c) the transferor was left with sufficient income to maintain his
normal standard of living.
You take out life assurance in your own name, assign it to a trust or a child.
Not a big transfer and hopefully you’ll live for seven years. keep paying
your annual premium into the policy. It is an exempt transfer if you can
cover the premium. Then the pay out is not payable to your estate for
inheritance tax.
NOTES - INHERITANCE TAX
Inheritance Tax
Exclusions and Exemptions
Inheritance Tax is not chargeable
where:
(a) Transferor is exempt;
(b) Transfer is exempt;
(c) Property transferred is excluded property (see below);
(d) Disposition is not a transfer of value.
(a) Exempt Transferors
Diplomatic Agents - Diplomatic Privileges Act 1964
Staff of International Organisations - International Organisation Act 1968
Consular Officers - Consular Relations Act 1968.
(b) Exempt Transfers
(i) Transfers between spouses/civil partners s 18 - Spouses anywhere in
tax legislation is also including civil partners
Unlimited except where recipient not domiciled in UK in which case exemption
restricted to £55,000 (increased to a lifetime limit of the nil rate band in 2013-
14).
Stop the use of channelling through a non-UK domiciled partner. To
children etc. Going up to the nil rate band. We will be examined on it
however in the 2012/2013 not the future.
NB: Spouse does not include an ex-spouse/ex Civil Partners but see (d)(ii)
below - Dispositions for Maintenance of the Family.
(ii) Annual Exemption, s 19 (Lifetime only)
First £3,000 of transfers in a year of assessment are exempt, s 19(1).
Earlier transfers receive the exemption first, even PETS (this may waste the
exemption - make any CTs first in the year) except where transfers take place
on the same day, in which case the a.e. is allocated pro rata s 19(3)
If you make a transfer to another individual in your lifetime that is not exempt
for other reasons the bit that’s covered by the annual exemption is not the
PETs part. So 100k has ti be divided into 3k exempt and 97k PET. The annual
exemption isn’t available for the subsequent transfer because the PET has
taken it. This might be a waste of the PET might not turn out to be chargeable
at all. So if making to gifts in a year make the chargeable transfer first
because it will get the annual transfer. Don’t waste it on a transaction which
might end up being exempt in the end if it makes the seven years.
, Carry forward of unused exemption for one year s 19(2). In allocating
exemptions, the current year’s exemption must be given before the carried
forward exemption.
You use the annual exemption from that year first only then can you use the
roll forward annual exemption.
Eg A makes a transfer of £5,000 in year 2, having made no transfers in year
1. All the year 2 exemption is used up plus £2,000 of the exemption carried
forward from year 1. There is no exemption to carry forward to year 3, as the
exemption from year 1 (of which £1,000 has still not been used) cannot be
carried forward for more than one year.
CANNOT use year 1 first and then carry over the £1k from year 2 as it can be
carried for one year.
(iii) Small gifts exemption, s 20 (Lifetime only)
Applies to outright gifts to individuals provided the value of the gift to each
individual does not exceed £250 in a year of assessment.
(iv) Normal Expenditure out of income, s 21 (Lifetime only)
No going into capital to make them
Has to be regular or intention to make them regularly
Must be out of income
Exempt to the extent that:
(a) it was made as part of the normal expenditure of the transferor, and
(b) taking one year with another, it was made out of his income, and
(c) the transferor was left with sufficient income to maintain his
normal standard of living.
You take out life assurance in your own name, assign it to a trust or a child.
Not a big transfer and hopefully you’ll live for seven years. keep paying
your annual premium into the policy. It is an exempt transfer if you can
cover the premium. Then the pay out is not payable to your estate for
inheritance tax.
