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LPC Law Notes Private Client Notes

Tax Notes

Updated Tax Notes

Private Client Notes

Private Client

Approximately 235 pages

A collection of the best LPC Private Client the director of Oxbridge Notes (an Oxford law graduate) could find after combing through twenty-nine LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short these are what we believe to be the strongest set of Private Client notes available in the UK this year. This collection of notes is fully updated f...

The following is a more accessible plain text extract of the PDF sample above, taken from our Private Client Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

TAX:

  1. Inheritance Tax [IHT] Checklist

IHT payable when the gift was made:

  1. Does the gift carry with it any liability [e.g. mortgage / charge on shares]

  2. Exemptions:

  • spouse 100%

  • charity 100%

  • political party 100%

  • Business property relief

  • small gifts

  • normal expenditure

  • marriage

  1. Annual exemptions [check dates]

  2. Equals = Value of the PET / LCT

  3. Gross up any LCT if donor is paying tax.

  4. TAX:

PET

No IHT payable

The PET is ignored while Peggy is alive

The value of the PET does not affect the Cumulative Total

LCT 1
  • NRB in the YEAR of the gift [check table]

  • Tax at 20% if it exceeds the NRB

LCT 2
  • NRB Option 1: “The LCT1 made more than 7 years before LCT 2. The PET is ignored therefore the whole NRB is available [check NRB table of that year]”

  • NRB option 2: “The LCT1 was made in the last 7 years before LCT2 therefore it effects the NRB available. The NRB is now [NRB of this year – cumulative total]”

  • NB. No taper relief at this stage

  • Valuation issues? [10% discount]

IHT payable on LCTs / PETs at date of death:

  1. Transferable NRB?

  2. x dies on DATE. The 7 year period runs from DATE”

  3. NRB transferable- transfer the appropriate % proportion not used

  4. Work chronologically:

  • First PET / LCT within the 7 year period – go back 7 years. Any LCT in that period will effect the cumulative total.

This LCT is not reassessed but may be relevant to calculating the cumulative total for subsequent gifts. Cumulative total = x”

  • PETs: “this PET was made within 7 years of death and must be assessed for tax.

The cumulative total = x + y

WHO pays?

  • LCTs: “It was made within 7 years of death so should be re-assessed at full rate applicable to death.

Trustees pay x [take off anything already paid / no refund]

Gross up?

  1. TAPER relief to PETs / LCTs

Value transferred on death:

  1. Assets [valuation rules]

  2. Liabilities [don’t include administration costs]

  3. Reliefs [spouse / charity]

  4. Free estate / estate passing under trust??

  5. Tax

  6. Taper relief

  7. Reclaim loss relief on land / shares

Other issues:

  • Estate rate?

  • Interest in possession / discretionary trust ignore

  1. Intestacy calculations

Estate passing on intestacy:

  1. Assets x

  2. Less: liabilities x

  3. = new estate x

  4. Spouse receives:

  • Personal chattels absolutely X

  • Statutory legacy [plus interest] X x

Residue = x

  • A life interest in one half of residue x

  1. Issue to receive:

  • Other half of residue on statutory trust / absolutely x

[but subject to IHT if NRB is exceeded]

  • On death of spouse, the fund which they have a life interest

Where the spouse has elected to capitalize the life interest:

  1. Assets x

  2. Less: liabilities x

  3. = new estate x

  4. Spouse receives:

  • Personal chattels absolutely X

  • Statutory legacy [plus interest] X

  • Lump sum [capital life interest] absolutely X x

Remainder = x

  1. Issue to receive:

  • Issue receive the remainder absolutely / on statutory trust minus IHT

[Pay IHT if NRB is exceeded]

If issue are full age / capacity = they can agree the capital value of the redemption with spouse. If they do not have capacity capital value of the redemption must be calculated in accordance with Intestate Succession Order 1977.

NB. If issue die before attaining vested interest – distribute estate as though they had never existed. Spouse will be entitled to the capital being held by the issue –but will get a refund of IHT [x PLUS interest] – because of spouse exemption.

3. Tax Planning

Tax implications for Lifetime gifts:

Outright Gift Gift into a Trust
  • Life interest Trust: does not pass under the will of the life tenant.

  • Discretionary Trust: Nominated Beneficiaries only have an “expectation”. No Interest in possession.

IHT Payable
  • PET: no IHT payable if the donor survives the gift by 7 years.

  • Lifetime Trust [set up after 22nd March 2006] = LCT. Tax is payable [at 20%] if settler’s NRB is exceeded.

CGT Payable
  • Yes! PET is treated as a disposal at market value. A chargeable asset.

[NB. There is NO CGT payable for chargeable assets passing under taxpayer’s will]

If asset is likely to significantly increase – better to get it out of estate and pay CGT. If not, keep it within estate and give as a gift under the will.

  • Holdover relief for chargeable [non-business] assets places in a life-time trust. [ADVANTAGE over outright gift]. If no more than the NRB is placed into the trust - there is no IHT or CGT to pay!

Non-tax implications for lifetime gifts:

Trust in preference to outright gift
  1. Discretionary trusts = where beneficiaries are different ages and have competing needs for funds cannot yet be foreseen. [i.e. very young! One beneficiary has special needs – difficult to know what they need] Family difficulties.

Letter of wishes to trustees – to set out priorities

  1. Life interest trust = appropriate for second marriages! [New spouse is life tenant; children of first marriage get capital inheritance]

Life interest trusts – Anti-avoidance issues:

  • Where tax payer makes a gift but continues to have use of the asset – [i.e. a “gift with reservation of the benefit” – he will not get the tax advantages. Instead, the IHT calculation is postponed until the reserved benefit is given up. The calculation is based on the then value of the asset.

  • Income Tax is chargeable to pre-owner assets [i.e. assets which have been given away but which are still used by settlor]. The rules apply retrospectively!

Other tax planning devices:

Skipping a generation
  • Making a gift to grandchildren instead of children.

  • Why is it Tax efficient: do not increase the size of the child’s estate [avoid two taxes]

Deeds of variation
  • A tool which allows beneficiaries under the will the power to re-direct property to others in greater need.

  • Variation = a ...

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