F6-chapter 18.pdf

Chapter 18 Inheritance tax: scope and transfers of value 1. Scope of inheritance tax ? When does a charge to IHT arise? IHT is a tax on gifts or transfers of value. There are two main chargeable occasions: (i) Lifetime transfers (ii) Death estate i.e. gifts made on death (will). ? Who is liable to IHT? Chargeable persons are individuals and trustees. Chargeable persons are taxed on all gifts of wealth that they make. Inheritance tax: scope and transfers of value 2. Transfers of value ? Diminution in value/loss to donor The value of the asset transferred for IHT is always measured as the reduction in value of the donor’s wealth, loss to donor, not the amount gained by the donee. Inheritance tax: scope and transfers of value Mr Jones owns 75% of Hill Jones Ltd, an unquoted investment company. He gives a 30% holding to his son. Shareholdings on this date were valued at: Shareholding ￡ 75% 370,000 45% 200,000 30% 105,000 Calculate the value transferred for IHT purposes. What is the value for CGT purposes? IHT: ￡ Value before transfer 370,000 Value after transfer (200,000) Transfer of value for IHT 170,000 CGT value (MV) ￡105,000 3. Exemptions a) Exempt gifts Gifts between spouses/civil partners are exempt from IHT. This exemption applies to both lifetime transfers and transfers on death. b) Exemptions applying to lifetime transfers only ? Gifts in consideration of marriage (a) The first ￡5,000 given by a parentis exempt. This applies per marriage. (b) The amount is lower for gifts by other parties: (i) ￡2,500 by a lineal ancestor, (e.g. grandparent) or one party of the marriage to the other (ii) ￡1,000 by any other person. Inheritance tax: scope and transfers of value ? Small gifts exemption (a) Up to ￡250 per donee per fiscal year. (b) Cannot apply to gifts exceeding ￡250 in total to the same donee. ? Normal expenditure out of income (a) Cash gifts which are habitu