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2 INHERITANCE TAX
Identify the transfer of value.
Inheritance Tax Act 1984 [IHTA] - s.1: Inheritance tax is charged on the value transferred by a chargeable transfer (following a disposition).
o Transfer of value = disposition whereby the transferor's estate immediately after the disposition is less than it would be but for the disposition - difference between value of the estate before and after the disposition = amount of the value transferred
Chargeable transfer = transfer of value made by an individual that is not an exempt transfer
(e.g. spouse exemption, charity exemption, etc.) - s.2 IHTA
When an individual dies, they are deemed to make a disposition and therefore a transfer of value occurs on death.
Find the value transferred (assets less liabilities) of deceased's estate, including any PETs and
General rule: property is valued at its open market value - i.e. what price it might have fetched if it had been sold on the open market immediately before death
IHT is potentially chargeable on:
Assets which are e.g. land, shares, bank accounts, personal chattels and even foreign owned by the property ( if you are UK domiciled)
If property owned as JTs, it passes by survivorship but a half share still forms part of the deceased's estate for IHT purposes.
Where land is jointly owned, the value is discounted to reflect the difficulty of selling co-owned property
10% for residential, 15% for business
discount does not apply where spouses own property together, but would if, e.g. father and son/brother and sister/
co-habiting partners own property
Where a beneficiary is given an interest in a deceased person's trust
Life Interests in Will assets for their lifetime (usually the entitlement to receive income
Trusts/Pre-2006 and/or live in a property owned by the trust), all assets in the will
Lifetime Trusts trust are subject to IHT on the interested beneficiary's death.
Property is still subject to IHT if gifted within 7 years of death.
→ BUT there may be taper relief available
PETs* and LCTs**
made within 7 years of death
Gifts with a
If the transferor retains a benefit from the property which has been
Reservation of Benefit gifted, it will be subject to IHT.
Jane (UK resident and domiciles) owns a pair of Ming vases.
As a pair, they are valued at £500,000. Singly, they are valued at £100,000 each.
She gives one of the vases away to her daughter.
Although she has given away a vase worth £100,000, the value transferred for IHT purposes is
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