BR Guide FINAL 20 Feb

81 80 APPENDIX APPENDIX Appendix Summary of Current IHT Regulations The main provisions of current IHT law are described in the Inheritance Tax Act 1984 (IHTA84). To review the full Act, visit: www.legislation.gov.uk/ukpga/1984/51/contents There is normally no IHT to pay if either: » the value of the estate beneficially owned by the deceased is below the £325,000 threshold (the NRB). » the deceased leaves everything to their spouse or civil partner, a charity or a community amateur sports club. If the deceased leaves their home to their children in their will (including adopted, foster or stepchildren or grandchildren), the RNRB comes into play and the threshold will increase to £425,000. (2017/18 tax year RNRB is £100,000 per spouse, but where a person died before 6 April 2017, their estate will not qualify for the relief and estates worth more than £2 million will be subject to a relief taper of £1 for every £2 by which the estate exceeds £2 million. However, the RNRB also allows for downsizing of a property.) PET and is subject to taper relief depending on how many years before the donor died the gift was made). » between spouses – these are generally IHT exempt if both spouses or civil partners are either UK or non-UK domiciled. » Small gifts of up to £250 per tax year, per recipient. These are IHT exempt up to a total of £3,000 per tax year. Unused annual exemption can be carried forward to the next tax year. » Gifts in consideration of marriage made by a parent of up to £5,000 are exempt, with lower limits for other donors. » Gifts out of income are exempt from IHT. These should be habitual and must not result in a fall in the standard of living of the donor. An example would be payments of annual premiums on life insurance policies. » family maintenance gifts such as the transfer of property made on divorce under a court order, or maintenance of a dependent relative are also IHT exempt. Trusts will generally take assets held within an individual’s estate outside the estate for IHT purposes (provided the donor does not obtain any benefit or enjoyment from the trust), reducing the size of the estate and the assets on which IHT is payable. This applies to provide 100% relief where the business is undertaking qualifying activities, where the owner of the shares has owned them for two years or more. Reinvestment relief also applies. This is available on the transfer of agricultural property so long as various conditions are met. This relief is not considered as part of this guide. Specialist advice should be taken, in particular because APR takes precedence over BR. Nil Rate Band and Residence Nil Rate Band Thresholds Charity Gifts Trusts Business Relief (BR) Agricultural Property Relief Life Assurance Married couples or those in a civil partnership with an estate worth less than the IHT threshold can pass on any unused NRB or RNRB to their surviving spouse or civil partner. This means the surviving spouse or civil partner can have an exempt amount up to £850,000. The rate of IHT on death is 40% on assets above the threshold and 20% on lifetime transfers where chargeable. Life assurance arrangements can be used as a means of removing value from an estate and also as a method of funding IHT liabilities, including covering IHT due on death. It should be remembered that the prospect of saving IHT should not be allowed to jeopardise the financial security of those involved. An estate can have reduced rate of IHT of 36% on some assets if the deceased leaves 10% or more of the ‘net value’ (after deducting IHT exemptions, reliefs and the NRB) to charity. People given gifts by deceased parties might have to pay IHT, but only if the deceased gives away more than £325,000 and dies within seven years. Examples of gifts can be: » transfers to a company or a trust (except a disabled trust). These are immediately chargeable (chargeable lifetime transfer) if the asset being transferred is worth more than the available NRB, unless an exemption applies. (Every seven years a full NRB will be available to make chargeable lifetime transfers). » exempt gifts which will be ignored both when they are made and also on the subsequent death of the donor, e.g. gifts to charity. » any other transfers will be potentially exempt transfers (PETs) and IHT is only due if the donor dies within seven years of making the gift (this is termed a failed Other Useful Information For detailed information on HMRC’s specific approach to BR, go to Section 11: relief for business property, the Valuation Office Agency’s (VOA) technical manual relating to IHT. Visit: https://www.gov.uk/guidance/inheritance-tax- manual/section-11-relief-for-business-property Listed Shares Check what is classified as a recognised stock exchange here: https://www.gov.uk/guidance/recognised-stock- exchanges Pre-clearance Qualification is not always clearcut and pre-clearance from HMRC (as is common with EIS) is often unavailable. However, in relation to certain lifetime transfers, a business owner can apply to HMRC to see whether BR is potentially available in respect of business property. This is a non-statutory procedure and is only available in cases where there is a material uncertainty as to the status of property. For information about HMRC clearance services, visit: https://www.gov.uk/guidance/non-statutory- clearance-service-guidance HMRC Guidance on the Meaning of Investment https://www.gov.uk/hmrc-internal-manuals/ shares-and-assets-valuation-manual/ svm111160