Audley Financial Training AF1: IHT 2019/20 6 May 2019 Audley Financial Training

A simple tax? Peter dies leaving an estate of £825,000. Calculate the amount of IHT that will be payable What is the chargeable estate? Chargeable Estate £825,000 Less NRB £325,000 Taxable estate £500,000 How does the estate qualify for the 36% rate Will the available NRB always be £325,000? £500,000 @ 40% = £200,000 6 May 2019 Audley Financial Training

Calculating the value of the deceased’s estate Everything owned by the deceased Joint assets split 50/50 Include loans life policies not in trust Uncrystallised pension and drawdown funds can be ignored Less any liabilities or debts of the deceased Reasonable funeral costs can also be deducted 6 May 2019 Audley Financial Training

Chargeable Estate Total Estate Less Exempt transfers Less IHT Reliefs Business Property Relief Agricultural property Relief Equals chargeable estate 6 May 2019 Audley Financial Training

Audley Financial Training Calculation Estate £800,000 Legacy to spouse (£200,000) Legacy to charity (£20,000) Chargeable Estate £580,000 6 May 2019 Audley Financial Training

Audley Financial Training IHT Reliefs Business Property Relief Agricultural Property Relief Quick Succession Relief Deducted from the estate Deducted from the estate’s IHT liability 6 May 2019 Audley Financial Training

Business Property Relief Value of business is added to the estate and then deducted from it To qualify for 100% relief it must be a trading business The business/asset must have been owned for 2 years Shares in unlisted companies qualify for BPR Shares listed on the AIM also qualify for BPR 50% relief is given on listed shares if the owner had 50% of the voting rights 6 May 2019 Audley Financial Training

Audley Financial Training Fred died with an estate of £900,000 and in addition he owned a business with a value of £300,000. (Qualifies for BPR) Estate £900,000 Plus business £300,000 Total estate £1,200,000 Less business (BPR) Chargeable estate 6 May 2019 Audley Financial Training

Agricultural Property Relief 6 May 2019 Audley Financial Training

Audley Financial Training To qualify It must be a working farm in the UK, Channel Islands, the IOM or in the EEA. It must be owned for at least two years if occupied by the owner, a company controlled by them or their spouse or civil partner. It must be owned for 7 years if occupied by someone else 6 May 2019 Audley Financial Training

= Taxable estate LESS Chargeable Estate Available Nil Rate Band 6 May 2019 Audley Financial Training

Working out the NRB Transfer of unused NRB from pre-deceased spouse/CP £325,000 PET/CLT made in 7 years before death 6 May 2019 Audley Financial Training

Rules for transferable NRB First death can have occurred at any time Couple must have been married at time of first death. Calculate percentage of NRB not used by first death Apply to current NRB Executors have two years to claim NRB Let’s look at the rules It doesn’t matter when the first death occurred As long as they were married at that time. We calculate the percentage of the NRB not used up on the first death HMRC have details of this going back to 1914 but in the exam you will be given the NRB in the year of the first death. You won’t be expected to memorise them. You apply this to the current NRB of £325,000. The executors have two years to claim this 6 May 2019 Audley Financial Training

How to work out transferable NRC Len died when the NRB was £250,000 He left £100,000 to his children and the remainder to his wife He used 40% of his NRB £100,000/£250,000 His wife died in 2019/20 Her executors can claim 60% of the current NRB £325,000 x 60% = £195,000 The NRB is £325,000 + £195,000 = £520,000 6 May 2019 Audley Financial Training

More than one pre-deceased spouse Unused NRB can be transferred from more than one spouse But the maximum that can be transferred is 100% Jane had two husbands who died before her. The first used 75% of his NRB The second used 40% Her estate can claim 85% 6 May 2019 Audley Financial Training

The three types of lifetime gifts Exempt Will never be subject to IHT No impact on NRB No IHT payable when gift is made Reduces NRB for 7 years after the gift was made Potentially Exempt Transfer Could be subject to IHT when the gift was made Reduces NRB for 7 years after the gift was made Chargeable Lifetime Transfer 6 May 2019 Audley Financial Training

Lifetime Exempt Transfers £3,000 annual exemption £250 small gifts Gifts on marriage Gifts to spouses/civil partners Gifts to charities/political parties Gifts out of normal expenditure Each individual can make a £3,000 gift in each tax year and that is totally exempt There is a further small gifts exemption of £250 There are also additional gifts that can be made on marriage These will be in the tax tables provided for the exam, What is more important is to understand how they work which we will look at in the next few slides. Spouses and civil partners can make unlimited gifts to each other. In addition unlimited gifts can be made to charities, political parties and various other gifts that are deemed to be in the national interest Since the annual exemption, small gifts and marriage allowances have not been increased for over 30 years there is a final one that is increasingly important which is gifts out of normal expenditure 6 May 2019 Audley Financial Training

Audley Financial Training Annual Exemption £3,000 to one person: exempt A gift of £2,000 to one person, £1,000 to another person: both exempt Six gifts of £500 to different people: all exempt. “No previous gifts made” means that the annual exemption doubles to £6,000 as last year’s unused relief can be carried forward Let’s start with the annual exemption. Each person can give £3,000 whether this is in cash or some other asset. It applies to the donor so you could give £3,000 to one person or £2,000 to one and £1,000 to another. You could make six gifts of £500 to different people and they would all be exempt. If the annual exemption wasn’t used in one tax year it can be carried forward to the next. This means that up to £6,000 can be given. In the exam watch for the phrase “no previous gifts have been made”. This means £6,000 annual exemption is available 6 May 2019 Audley Financial Training

Audley Financial Training Small gifts exemption Unlimited gifts of £250 to different individuals: all exempt 1 gift of £251 would use up part of the annual exemption. Cannot combine small gifts with annual exemption Therefore 1 gift of £3,250 would use up the £3,000 annual exemption but £250 would not be exempt The limit of £250 applies to the recipient so someone could give unlimited gifts of up to £250 to different individuals and they would all be exempt. Any gift over £250 would not be exempt under the small gifts rule. The annual and small gifts exemption cannot be combined. So if you gift £3,250 only £3,000 would be exempt £250 would not be exempt. In the same way if you were giving out envelopes containing £250 to passers by, if someone was greedy and took two, that would be £500 out of your annual exemption 6 May 2019 Audley Financial Training

Audley Financial Training Gifts on marriage Amounts in the tax tables given in the exam Can be combined with the annual exemption Parent, assuming no previous gifts, can gift £11,000 which would be exempt £6,000, two annual exemptions PLUS £5,000 marriage gift exemption These are Parents of bride/groom, £5,000 Grandparents £2,5000 Anyone else £1,000 These can be combined with the annual exemption So a parent who had made no previous gifts could gift £11,000 and it would all be exempt This would be made up of two lots of annual expenditure plus the £5,000 wedding gift. Remember too that both parents could potentially use this giving a total of £22,000 6 May 2019 Audley Financial Training

Gifts out of normal expenditure There are three tests that must be met to qualify Income Regular Since the allowances have not been changed for over 30 years the use of gifts out of normal expenditure has become more important. IHT is a tax on the transfer of capital, not income. To be classed a out of normal expenditure three tests must be met. It must be from income It must be regular It must not affect your standard of living Not affect standard of living 6 May 2019 Audley Financial Training

Reducing NRB with PET/CLT £175,000 £325,000 £75,000 Nil £105,000 £45,000 £145,000 £100,000 £120,000 £150,000 £60,000 1/7/21 1/7/11 1/7/14 1/7/16 1/7/18 1/7/19 6 May 2019 Audley Financial Training

PET/CLT plus Annual Exemption Father makes £10,000 gift to daughter, having made no previous gifts £6,000 exempt £4,000 PET 6 May 2019 Audley Financial Training

Death transfer with PET Peter was single when he died and had an estate of £400,000. Five years earlier he gifted £100,000 to his nephew. Calculate the IHT that would be payable NRB 325,000 PET £100,000 Less 2 x annual allowance 6,000 94,000 Available NRB 231,000 Estate 400,000 Less NRB Chargeable estate £169,000 Tax due £169,000 x 40% £67,600 Here we have an outstanding gift of £100,000 which became chargeable since death occurred within 7 years of the gift. You should always start with the NRB which in this case is £325,000 as Tim was divorced. You then reduce this by the PETs. Tim had made no other gifts so you can deduct two lots of annual exemption to reduce it to £94,000. This reduces the NRB to £231,000. You then carry on as before so £169,000 of the estate is chargeable resulting in a tax charge of £67,600 6 May 2019 Audley Financial Training

Death transfer with PET (2) Rachel was divorced and made a gift of £400,000 to her son in June 2017. She made no other gifts. Rachel died in July 2019 and her estate was £400,000 NRB 325,000 PET £400,000 Less 2 x annual allowance 6,000 394,000 NRB is wiped out but £69K remains outstanding Son pays £69,000 @ 40% 27,600 Estate £400,000 @ 40% £160,000 Let’s look at another example. This is similar to the last one but we have a larger PET of £394,000. This wipes out the NRB but there is still £69,000 outstanding. This is chargeable on Rachel as the recipient. The estate has now no NRB so the whole amount is chargeable at 40% 6 May 2019 Audley Financial Training

Audley Financial Training Taper relief PET & CLT reduce the NRB. When NRB is exhausted the recipient becomes liable. It reduces tax payable by recipient Does not reduce the amount of the gift No reduction if death occurs within 3 years of gift. Then a reduction of 20% for each year until there is an 80% reduction in the final year 6 May 2019 Audley Financial Training

Audley Financial Training Don gave £240,000 to Betty in September 2012 and £200,000 to Charlie in May 2016. No other gifts had been made. He dies in August 2019 with an estate of £600,000 NRB 325,000 Gift to Betty 240,000 Less 2 x £3,000 6,000 234,000 91,000 Gift to Charlie 200,000 194,000 (103,000) £103,000 @ 40% £41,200 Less taper at 20% £8,240 Charlie pays £32,960 Estate £600,000 @ 40% £240,000 6 May 2019 Audley Financial Training

Rules for dealing with PET/CLT on death They reduce the NRB They are not added to the estate They are dealt with in chronological order starting with the earliest first If the NRB is exhausted the excess becomes chargeable on the recipient. Taper relief can be used to reduce the tax payable by the recipient. Let’s look at the rules It doesn’t matter when the first death occurred As long as they were married at that time. We calculate the percentage of the NRB not used up on the first death HMRC have details of this going back to 1914 but in the exam you will be given the NRB in the year of the first death. You won’t be expected to memorise them. You apply this to the current NRB of £325,000. The executors have two years to claim this 6 May 2019 Audley Financial Training

Audley Financial Training PETS in more detail A gift that is made to a person that is not exempt Also a gift to a bare trust No tax is payable at time of gift, regardless of the amount of the gift Becomes exempt if donor alive 7 years after making gift 6 May 2019 Audley Financial Training

Interaction of CGT and PET A man age 72 has an extensive investment portfolio He wants to give some of this to his children,. Should this be done now or wait until he dies and leave it to them in his will? A gift now will incur CGT but as it is a PET, if he lives to 79 it would be exempt. If he dies before then it will be taken into account in calculating the IHT liability but if he passes it on in his will, there would be no CGT but it would be part of his estate. 6 May 2019 Audley Financial Training

Gifts with reservation To try and avoid IHT they transfer ownership to their two sons but agree that they can continue to live there and pay a nominal rent Dan and Doris own a house worth £3m. This is their only significant asset 10 years later the last parent dies. The house is worth £4m. What is the situation as regards IHT? 6 May 2019 Audley Financial Training

Audley Financial Training And the answer is…. It would be regarded as a Gift with Reservation (GWR) as the parents were benefiting from the right to live there at a low rent. It would not be a PET and would never become exempt no matter how long the parents lived. The sons would be the legal owners but the house would be part of the deceased’s estate and the value would be £4m If the son’s decided to sell the house it would be subject to CGT on the difference between the sale price and the value at date of transfer. They could not claim PPR 6 May 2019 Audley Financial Training

Audley Financial Training CLTs in more detail Now a gift to most trusts Can use with annual allowance in the same way as a PET Tax may be payable at time of gift 0% on first £325,000, then 20% on excess Payable by trustees, if paid by donor rate is 25%. If donor survives 7 years then the gift becomes exempt Gifts are cumulated over 7 years 6 May 2019 Audley Financial Training

Lifetime Tax (Trustees pay) Bob makes a gift of £625,000 into a discretionary trust (assume annual exemption has been used) This is £300,000 above the NRB The trustees are liable to pay tax @20% on £300,000 = £60,000 Gift £625,000 Less NRB £325,000 £300,000 £300,000 @ 20% £60,000 6 May 2019 Audley Financial Training

Lifetime Tax (Donor pays) Bob makes a gift of £625,000 into a discretionary trust and agrees to pay the tax Taxable gift is grossed up £3000,000/0.8 = £375,000 He liable to pay tax @20% on £375,000 = £75,000 Gross gift is £700,000 Alternative method £300k @ 25% = £75,000 Gift £700,000 Less NRB £325,000 £375,000 £375,000 @ 20% £75,000 6 May 2019 Audley Financial Training

Audley Financial Training CLT cumulation £200K + £60K = £260K Below NRB therefore no tax £325K + £60K = £385K less £325K = £60K @ 20% = £12,000 £300K + £325K = £625K less £325K = £300,000 @ 20% = £60,000 No tax: below NRB £200,000 £325,000 £300,000 £60,000 1/8/19 1/7/10 1/7/12 1/7/18 6 May 2019 Audley Financial Training

Audley Financial Training CLT tax on death Death Tax 4 ½ years later NRB 325,000 CLT 625,000 Chargeable gift 300,000 £300,000 x 40% £120,000 Less Taper Relief 40% £48,000 £72,000 Less lifetime tax paid £60,000 Amount owing £12,000 Life Tax 625,000 Less NRB 325,000 Chargeable gift 300,000 £300,000 x 20% £60,000 6 May 2019 Audley Financial Training

Extra rules for dealing with CLT on death Original CLT reduces NRB If NRB is exhausted trustees are charged at 40% on the excess Taper relief can be used to reduce the tax The trustees can then offset any lifetime tax But if lifetime tax paid is more than death tax after taper there is no refund Let’s look at the rules It doesn’t matter when the first death occurred As long as they were married at that time. We calculate the percentage of the NRB not used up on the first death HMRC have details of this going back to 1914 but in the exam you will be given the NRB in the year of the first death. You won’t be expected to memorise them. You apply this to the current NRB of £325,000. The executors have two years to claim this 6 May 2019 Audley Financial Training

Audley Financial Training Getting the 36% rate 6 May 2019 Audley Financial Training

Audley Financial Training Charitable legacies Charitable legacies are exempt transfers but if legacies to charities on death are more than 10% of the baseline amount the taxable estate is taxed at 36% Deed of variation can be used to ensure sufficient is given to qualify for the lower rate 6 May 2019 Audley Financial Training

Calculating the baseline amount Estate £1,325,000 £50,000 legacy is 5% of the Baseline amount therefore does not qualify for the 36% rate Less charitable legacy £50,000 Chargeable estate £1,275,000 Less NRB £325,000 Taxable estate £950,000 Add back legacy £50,000 Baseline amount £1,000,000 6 May 2019 Audley Financial Training

Audley Financial Training David has an estate of £900,000. His will leaves £450,000 to his wife, £50,000 in total charities and residue split between his two children. Estate £900,000 £50,000 legacy is 40% of Baseline amount therefore qualifies for 36% rate Less spousal legacy £450,000 Less charitable legacy £50,000 Chargeable estate £400,000 Less NRB £325,000 IHT liability is £75,000 @ 36% = £27,000 Taxable estate £75,000 Add back legacy £50,000 Baseline amount £125,000 6 May 2019 Audley Financial Training

Audley Financial Training The rules Baseline amount = Taxable estate + legacy In calculating the NRB to work out the taxable estate: RNRB cannot be used Any transferable NRB can be used. Previous PET/CLT, will reduce the NRB The 36% rate will be applied to the taxable estate 6 May 2019 Audley Financial Training

Audley Financial Training There is more HMRC split the deceased’s assets into three components General component (solely owned assets) Survivorship component (jointly owned assets) Settled component (trust property) Full guidance in my notes) 6 May 2019 Audley Financial Training

Quick Succession Relief Reduces the amount of tax payable To avoid the estate being effectively taxed twice in quick sucession 6 May 2019 Audley Financial Training

Quick Succession Relief (conditions) Deceased’s estate must have paid IHT OR recipient of lifetime gift became liable to IHT on donor’s death Recipient died within 5 years of 1st death + IHT was payable 6 May 2019 Audley Financial Training

Audley Financial Training Alan dies in August 2017 Legacy to wife Legacy to daughter Wife dies in 2020 Daughter dies in 2020 Spouse No QSR Children Children No QSR QSR available 6 May 2019 Audley Financial Training

Audley Financial Training QSR Formula Net Gift/Gross Gift x Tax payable on first transfer (Amount A) Amount A x Set Percentage = Quick Succession Relief Second death within 1 year of first 100% Within 1 -2 years 80% Within 2-3 years 60% Within 3-4 years 40% Within 4-5 years 20% IHT on second death less QSR = IHT liability 6 May 2019 Audley Financial Training

Audley Financial Training QSR calculation Helen died 2½ years later with an estate of £825,000 The IHT liability was £200,000 Helen was the sole beneficiary of her father’s estate. The estate was £625,000 and £120,000 was payable. She received £505,000 This is multiplied by the correct percentage. For 2 ½ years it is 60% so £96,960 x 60% = £58,176 The £120,000 that was paid on her father’s estate is reduced by Net gift/gross gift £505,000/£625,000 x £120,000 = £96,960 Her IHT bill is £200,000 less £58,176 = £141,824 6 May 2019 Audley Financial Training

Audley Financial Training QSR calculation Jack died 1½ years The IHT liability was £200,000 Jack was one of the beneficiaries of his father’s estate. He received £100,000. The estate was £800,000 and £190,000 was payable. £100,000/£123,750 x £23,750 = £19,191 £19,191 x 80% = £15,352 The net gift was £100,000 The % of IHT paid was £190,000 / £800,000 = 23.75% £100,000 x 23.75% = £23,750 The gross gift was £123,750 His IHT bill is £200,000 less £15,352 = £184,648 6 May 2019 Audley Financial Training

Audley Financial Training Paying IHT IHT must be paid by the end of the sixth month after the person died. If death was in January, IHT must be paid by 31st July. Payment can be made in equal annual instalments over ten years if some assets are difficult to sell. The first instalment is payable at the end of the sixth month after the person died. The tax must be paid in full once the assets are sold If the beneficiary decides to live in the house they can pay 10% of the tax (plus interest) each year. 6 May 2019 Audley Financial Training

IHT: Residential Nil Rate Band Tax Year 2019/20 6 May 2019 Audley Financial Training

Audley Financial Training RNRB: the essentials An additional NRB of £150,000 (or value of house if lower) for 2019/2020 if home is passed to direct descendants. Death occurred on or after 6/4/17 Can transfer RNRB from pre deceased spouse Starts to be withdrawn if total estate is more than £2 million 6 May 2019 Audley Financial Training

Home sweet Qualifying Residential Interest The deceased must have owned the house and at some time occupied the property The deceased does not need to have occupied the property at date of death. Under some circumstances the house does not need to have been owned at time of the deceased’s death (it must have been owned on July 8 2015) The value of the home is the market value less any mortgage The house does not need to be passed to descendants, the executors could sell the property and pass the cash to them 6 May 2019 Audley Financial Training

Audley Financial Training Mrs Smith Mr Smith Mrs Smith (2) Mr Brown Susan Tim Brenda David Plus adopted children and foster children 6 May 2019 Audley Financial Training

Audley Financial Training Angela is divorced and has a property with a value of £500,000 and other assets worth £300,000. In her will this is all bequeathed to her daughter.    House £500,000 Other assets £300,000 Chargeable estate £800,000 RNRB £150,000 £650,000 Less NRB £325,000 Taxable estate £325,000 6 May 2019 Audley Financial Training

Audley Financial Training Stuart died in September 2019. Two years earlier he made a PET of £100,000 to his son. The will left his house valued at £300,000 plus other assets of £200,000 to his son.   House £300,000 Other assets £200,000 Chargeable estate £500,000 Less RNRB £150,000 £350,000 NRB £325,000 Less PET £100,000 £225,000 £225,000 Taxable estate £125,000 6 May 2019 Audley Financial Training

Audley Financial Training Camilla died in May 2019. Two years earlier she made a PET of £500,000 to her son. Her will left the house valued at £300,000 plus other assets of £200,000 to her son.   House £300,000 Other assets £200,000 Chargeable estate £500,000 Less RNRB £150,000 £350,000 NRB £325,000 Less PET £500,000 (£175,000) £0 Taxable estate £350,000 6 May 2019 Audley Financial Training

Audley Financial Training Transferable RNRB If first death occurred before 6 April 2017, surviving spouse will usually inherit 100% of the deceased’s RNRB However this can be reduced if first death’s estate would have been subject to tapering Mr Brown died in 2003. their home was owned on a joint tenancy basis. Mrs Brown died in June 2019. Her executors can claim his unused RNRB to give a total of £300,000 6 May 2019 Audley Financial Training

Audley Financial Training Transferable RNRB If first death occurred after 6 April 2017, surviving spouse can inherit the deceased’s unused RNRB Mr Brown died in August 2017. The house was owned on a tenants in common basis His will passed 75% his share to his wife and the other 25% (£50,000) to his daughter, therefore using 50% of his RNRB When Mrs Brown dies her executors can claim 50% of his RNRB 6 May 2019 Audley Financial Training

Audley Financial Training Tapering RNRB If deceased’s estate is more than £2 million, the RNRB starts to be tapered away at the rate of £1 for every £2 above £2m For 19/20 it will be lost if estate is more than £2,300,000, In calculating the estate to see if it breaches the limit you cannot reduce it by charitable donations or by Business Property Relief Also needs to be applied to transferable RNRB 6 May 2019 Audley Financial Training

Tapering and transferable RNRB Jane died in June 2019 with an estate of £2.1m. The house is passed to her husband This £100,000 above £2m so the RNRB is reduced by £50,000 to £100,000 This is 66% of the full RNRB (£100,000/£150,000) so when her husband dies, only 34% of her RNRB can be claimed by his estate. 6 May 2019 Audley Financial Training

Transferring RNRB from pre April 2017 death Mrs Smith died in 2013. Her house was held on a joint tenancy basis with her husband. When he died in May 2019 the house was inherited by his daughter His executors believed 100% of her RNBR could be claimed Her estate was £2,100,000 so RNBR is reduced by £50,000 Pre April 2017 deaths are deemed to have an RNBR of £100,000 Therefore his estate can only claim 50% of the current RNBR therefore the amount is £75,000 6 May 2019 Audley Financial Training

Audley Financial Training There is more! Putting the home into trust on death Downsizing Full details are in my guides and video tutorials 6 May 2019 Audley Financial Training

Audley Financial Training IHT :the 14 year rule 6 May 2019 Audley Financial Training

Audley Financial Training The basic principle A CLT (not a PET) made between 7 and 14 years before death cast a “shadow” for 7 years after it was made If the CLTs shadow catches a CLT or failed PET in the 7 years before death, the NRB available to the recipient of the gift is reduced by the value of the CLT Only PET/CLT made in the 7 years before death reduce the NRB available to the estate PET/CLT outside the CLT’s shadow are not affected Death 14 years 7 years CLT 6 May 2019 Audley Financial Training

Audley Financial Training The 14 year rule Estate £325,000 less £300,000 = £25,000 NRB Trustees £300,000 + £200,000 less £325,000 NRB = £175,000 @ 40% = £70,000 CLT £300,000 CLT £200,000 Death 1/11/19 1/10/15 1/12/09 1/12/09 1/11/12 6 May 2019 Audley Financial Training

What happened when the CLT were made? First CLT of £200,000 made on 1/12/09. No tax The second CLT of £300,000 was made October 1 2015 Under the 7 year cumulation rule the earlier CLT of £200,000 would have to be taken into account. The first CLT used up £200K of the NRB leaving £125K The second CLT would have used up this £125K and £175K would be chargeable £175,000 @ 20% = £35,000 6 May 2019 Audley Financial Training

Death calculation on second CLT recipient NRB £325,000 Less first CLT £200,000 £125,000 Second CLT £300,000 Less remaining NRB Amount chargeable £175,000 £175,000 @ 40% £70,000 Net after taper (20%) £56,000 Less tax paid £35,000 Liability £21,000 6 May 2019 Audley Financial Training

Audley Financial Training Process If there is a PET or CLT in the 7 years before death Look back 7 years from the date of the gift to see if there was a CLT made seven years before death If there was add the earlier CLT to the CLT or failed PET made in the 7 years before death If this is in excess of the NRB the recipient is charged at 40% on the excess but liability cannot be more than 40% of the total gift Taper relief and any tax paid at the time of the first gift can be deducted. 6 May 2019 Audley Financial Training

Audley Financial Training CLT made before PET The PET fails and becomes effectively a CLT £325,000 less £300,000 =£25,000 NRB But does the recipient have to pay? We must therefore look back 7 years to 1/09/09 to see if there any CLT PET £300,000 CLT £200,000 Death 1/11/19 1/12/010 1/09/09 1/09/16 1/11/12 6 May 2019 Audley Financial Training

Calculation of IHT on PET recipient NRB £325,000 Less CLT £200,000 Remaining NRB £125,000 Less failed PET £300,000 Amount chargeable £175,000 £175,000 @ 40% £70,000 Less taper relief (20%) £14,000 Liability £56,000 6 May 2019 Audley Financial Training

Audley Financial Training CLT made before PET (2) Estate still has £25,000 NRB CLT wipes out the NRB available to the 2016 PET PET £300,000 CLT £600,000 Therefore £300,000 @ 40% = £120,000 Death 1/11/19 1/12/10 1/12/09 1/12/16 1/11/12 6 May 2019 Audley Financial Training

Audley Financial Training CLT made before PET On mum’s death both PETS fail Mother made gifts to her two children on their 18th birthday CLT uses up £200K of the NRB leaving £125K 2014 PET uses up £100K leaving £25K PET £100,000 PET £100,000 CLT £200,000 Only £25,000 of NRB left so £75,000 is chargeable on the 2016 gift Death 1/11/19 1/12/10 1/8/07 1/12/16 1/8/14 1/11/12 6 May 2019 Audley Financial Training

Audley Financial Training PET made before CLT This is correct When the CLT was made the PET would not have been taken into account £325,000 less £300,000 =£25,000 NRB No charge on recipient? CLT £300,000 PET £200,000 Death 1/11/19 1/12/10 1/12/09 1/12/16 1/11/12 6 May 2019 Audley Financial Training

Audley Financial Training Paying IHT IHT must be paid by the end of the sixth month after the person died. If death was in January, IHT must be paid by 31st July. Works of art can be accepted in lieu of IHT Payment can be made in equal annual instalments over ten years if some assets are difficult to sell. The first instalment is payable at the end of the sixth month after the person died. The tax must be paid in full once the assets are sold If the beneficiary decides to live in the house they can pay 10% of the tax (plus interest) each year. 6 May 2019 Audley Financial Training