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Inheritance Tax Notes

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This is an extract of our Inheritance Tax document, which we sell as part of our Private Client Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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Wills & Administration of Estates LPC Exam Revision Inheritance Tax When is IT Payable?
All transfers of value are subject to IT unless it is exempt. IH can be paid during a lifetime as well as after death. There are three kinds of chargeable transfer:

1. Potentially Exempt Transfers ('PET') A PET is made by a person during their lifetime to another person. No IT is payable at the time of the PET nor if the transferor survives for 7 years after the PET. IT is payable if the transferor dies within 7 years of the PET at a rate of 40% above the threshold (see below).

2. Lifetime Chargeable Transfers ('LCT') A LCT is a transfer to another person into a trust. IT is payable at the time of the LCT at 20% above the threshold. If the transferor survives 7 years after the LCT the no further tax charges are made. If the transferor dies within 7 years of the LCT then the tax liability is reassessed at the death rate of 40%.

3. Death When a person dies then the person's estate will be taxed at 40% above the threshold. The threshold is PS325,000. Everything below this figure is not taxed; everything above this figure is taxed as detailed above. IT can be reduced on death to 36% if a person leaves 10% of their net estate to charity.

Cumulative Total & Thresholds HMRC considers all IT transfers made the in 7 years before death. Cumulative Total = Total Chargeable Value of all Chargeable Transfers made in the past 7 years.

Work out the cumulative total before working out the threshold. Threshold = PS325,000 - Cumulative Total Prior PET/LCT

After PET?

PET/LCT

Threshold

IT Payable?

Cumulative Total : 0

Cumulative Total
=0

Cumulative Total =
PET/

PS325,000
- Cumulative Total

Below Threshold: 0%

(PET only taxed if fails)

LCT total

Exemptions & Relief LCTs & Failed PETs

/tmp/Inheritance_Tax.docx

Above Threshold: 40%

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