Estates—inheritance tax

Introduction to IHT

For a quick guide to the basics of the inheritance tax (IHT) regime and a broad overview of UK tax rates, exemptions, basic nil rate band (NRB), residence nil rate band (RNRB), transferable NRB and RNRB, agricultural property relief (APR), business property relief (BPR), the reduced 36% tax rate for estates which include at least 10% gifts to charity, the territorial scope of IHT domicile (general, deemed and elected), restrictions on deducting loans and debt, lifetime gifts, small gifts relief, the use of trusts and compliance procedures, see Practice Note: Introductory guide to IHT.

See also Practice Note: Case study—IHT calculation on death.

The charge on death

The IHT charge on death falls under two headings:

  1. the additional charge—which arises on the chargeable lifetime transfers and the potentially exempt transfers (PETs) made in the seven years before death, and

  2. the estate charge—which arises on the value of all the property the deceased owns (or is deemed to own) immediately before death

The calculation and apportionment of IHT due on death can be complex, especially taking account of trust interests, chargeable

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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