The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note outlines how to calculate the amount of inheritance tax that arises on death. It should be read in conjunction with the example calculations indicated in the text.
The tax charge on death falls under two headings:
the ‘additional charge’ ― which arises on the chargeable lifetime transfers (CLT) and the potentially exempt transfers (PET) made in the seven years before death, and
the ‘estate charge’ ― which arises on the value of all the property the deceased owns (or is deemed to own) immediately before death
HMRC has produced an Online IHT checker to give an estimate of the IHT due. HMRC warns, however, that this does not calculate the IHT (it merely estimates) and is not a substitute for the required reporting procedures.
When a chargeable transfer is made, whether during lifetime or on death, part or all of it may fall within the nil rate band. Technically, a 0% rate of tax is applied to this portion, which is calculated using the cumulation principle. The cumulation principle determines the amount of nil rate band available to each transfer with reference to transfers in the previous seven years. See the Nil rate band guidance note.
To the extent that the transfer exceeds the nil rate band, it is charged to tax at either the death rate or the lifetime rate. The primary rate at which IHT is charged on death is 40%, although there are provisions for a reduced rate of 36% when part of the estate goes to charity. See the Reduced rate of IHT for estates leaving gifts to charity guidance note. This 40% (or 36%) rate applies to both lifetime transfers which have become liable to the additional charge on death and to the taxable estate on death. The lifetime rate of 20% applies only when lifetime transfers are chargeable at the time they are made. See the Chargeable lifetime transfers guidance note.
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