The second article in the series covers those aspects of inheritance tax that you will need to know, such as tax liability on lifetime transfers and death estates, and inheritance tax payments. Read part 1 here
The Paper F6 (UK) syllabus requires a basic understanding of inheritance tax (IHT), and this two-part article covers those aspects that you need to know. It is relevant to those of you taking Paper F6 (UK) in either June or December 2013, and is based on tax legislation as it applies to the tax year 2012–13 (Finance Act 2012).
There will always be a minimum of five marks (but no more than 15 marks) on IHT, with these marks being included in either Questions 3, 4 or 5. The first part of the article covered the scope of IHT, transfers of value, rates of tax and exemptions.
Tax liability on lifetime transfers
When calculating the tax liability on lifetime transfers there are three aspects that are a bit more difficult to understand, and can cause problems for students.
CLT preceded by a PET that becomes chargeable
The situation where a CLT is made before a PET is fairly straightforward, and has been covered in previous examples. However, where the sequence of gifts is reversed the IHT calculations are more complicated because the PET will use some or all of the nil rate band previously given to the CLT.
Ali died on 3 March 2013. He had made the following lifetime gifts:
- 1 August 2010 – A gift of £360,000 to his son
- 21 November 2011 – A gift of £240,000 to a trust
These figures are after deducting available exemptions.
The nil rate band for the tax years 2010–11 and 2011–12 is £325,000.
IHT liabilities are as follows: