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Tapering of residence nil rate band

18th October 2018 By bespoketax

The Inheritance Tax main residence nil-rate band (RNRB) came into effect on 6 April 2017. The RNRB is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent, such as children or grandchildren, after their death. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band (NRB) threshold.

The RNRB is being introduced in stages; it commenced at £100,000 in 2017-18, increased to £125,000 in 2018-19 and will increase to £150,000 in 2019-20 and £175,000 in 2020-21. Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing NRB. Taken together with the current Inheritance Tax threshold this means that by 2020-21, parents will be able to pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.

However, there is a tapering of the RNRB for estates worth more than £2 million even when the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is valued at more than the £2 million taper threshold. Essentially, this means that no RNRB will be available for estates in 2018-19 that are worth more that £2.25million. Tapering can also reduce the amount of additional threshold available to transfer to a surviving spouse or civil partner even if no additional threshold is used on the first death.

Filed Under: Inheritance Tax

IHT Disclosure of Tax Avoidance Schemes from April 2018

29th August 2018 By bespoketax

The Disclosure of Tax Avoidance Schemes (DOTAS) legislation, targets taxpayers who implement listed tax avoidance schemes as well as the promoters of tax avoidance schemes. New regulations came into force on 1 April 2018 that extended the scope of the IHT hallmark to make it more comprehensive.

HMRC has been careful to listen to concerned practitioners to ensure the new hallmark is appropriately targeted to catch IHT avoidance schemes, but not the straightforward use of reliefs and exemptions or ordinary tax planning arrangements.

The new regulations add new descriptions of disclosable arrangements, which are designed to reduce the value of an estate on death or those which seek to avoid certain other IHT charges in addition to ‘entry charges’ on relevant property trusts.

The new hallmark also ensures that established retail products, which accord with established practice that HMRC has previously accepted, do not have to be disclosed if they were first made available and entered into before 1 April 2018.

Filed Under: Inheritance Tax

Gifting share in home

7th August 2018 By bespoketax

Most gifts made during a person’s life are not subject to tax at the time of the gift. These lifetime transfers are known as ‘potentially exempt transfers’ or ‘PETs’. The gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The rules are different if the person making the gift retains some ‘enjoyment’ of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned. These gifts fall under the heading of ‘Gifts With Reservation of Benefits rules’ or ‘GWROBs’. A common example is where an elderly person gifts their home to their children (who usually live elsewhere) and continues to live in the house rent-free.

There is an interesting exception to the GWROBs rules that occurs when there is a gift of an ‘undivided shares of land’. This can happen when for example an adult child moves in with a parent and the parent transfers the home into joint ownership (usually a 50:50 split). Where the two people jointly occupy the property and share the outgoings then HMRC will accept that this is not a GWROB. However, the relief is not straightforward and HMRC will carefully examine such arrangements to ensure that they meet the necessary requirements for relief.

Planning note

If you are contemplating any of the arrangements set out in this post please call to clarify that no adverse tax consequences will occur as a result.

Filed Under: Inheritance Tax

Gifts with strings attached

6th June 2018 By bespoketax

Most gifts made during a person’s lifetime are not subject to tax at the time of the gift. The lifetime transfers are known as ‘potentially exempt transfers’ or ‘PETs’. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

However, the rules are different if the person making the gift retains some ‘enjoyment’ of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned. These gifts fall under the heading of ‘Gifts With Reservation of Benefits rules’ or ‘GWROBs’.

A common example is where an elderly person gifts their home to their children (who usually live elsewhere) and continues to live in the house rent-free. Under these circumstances, HMRC would say that the basic position of the donor remained unchanged and that this is a GWROB. In this case the taxman will not accept that a true gift has been made and the ‘gift’ would remain subject to Inheritance Tax even if the taxpayer dies more than 7 years after the transfer.

Planning note

A GWROB can usually be avoided in this type of situation if the donor pays full market rent for the use of the asset gifted. We would be happy to help you understand what options are available to reduce your liability to Inheritance Tax whilst at the same time protecting your assets.

Filed Under: Inheritance Tax

Trustees responsibilities

30th May 2018 By bespoketax

A trust is an obligation that binds a trustee, an individual or a company, to deal with the assets such as land, money and shares which form part of the trust. The person who puts assets into a trust is known as a settlor and the trust is for the benefit of one or more ‘beneficiaries’.

The trustees make decisions about how the assets in the trust are to be managed, transferred or held back for the future use of the beneficiaries. They are also responsible for reporting and paying tax on behalf of the trust.

Where there are two or more trustees, one should be nominated as the ‘principal acting trustee’ to manage its tax. However, this nomination does not absolve other trustees from paying tax and interest if the trust fails to do so.

A trust needs to be registered with HMRC if it pays or owes tax. A new trust must be registered by the 5 October in the tax year after the trust starts to pay Income Tax or Capital Gains Tax for the first time. There are separate deadlines for existing trusts and a different process for registering an estate of someone who’s died.

A trust and estate Self Assessment tax return reporting any income and gains must be submitted to HMRC after the end of the tax year. The deadlines are the same as for taxpayers i.e. the 31 January after the end of the tax year for electronic returns and the earlier deadline of 31 October for paper returns.

The trustees are also responsible for providing the beneficiaries with a statement of the amount of income and tax paid by the trust, if they are asked to do so. There are also further requirements for trustees under certain circumstances such as when the trust needs to pay Inheritance Tax.

Filed Under: Inheritance Tax

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