(IHT) is probably the tax that people get the most annoyed about and seek to
avoid paying if at all possible. It is
potentially payable on all transfers of value, not only on death.
However, it is
important to try to understand the tax how and why it works like it does as
well as considering some of the planning opportunities that is available to
us. It is important to understand that
in a document of this type, it is only really possible to take a cursory look
at this complicated tax. Prior to
undertaking any planning specialist advice should be obtained.
In this document,
we will also consider Trusts and their uses.
This is because trusts are inextricably linked to the mitigation of IHT.
complicated as it seeks to levy a tax charge when any asset is transferred from
the ownership of one person (which can include a trust etc) to another.Trusts have been a part of English Law for
many centuries and can certainly be traced back to medieval times and as such,
much of the “law” surrounding trusts, and as a result IHT, is complicated by
this. There have been a number of Acts of Parliament setting out the Law in relation to trusts, but this aspect is not
covered by this legislation, then English Common Law still applies along with
Case Law (where Courts have made a ruling interpreting the Common Law). Whilst the historic background is similar,
Scotland and Northern Ireland have different legislation concerning Trusts, although generally the legislation is broadly
similar. However the IHT legislation applies in the same way throughout the UK.
How We Got To Where We Are
In 1894 transfers
of capital on death became subject to a tax charge for the first time with the
introduction of Estate Duty. The Finance
Act 1975 extended the regime of tax on transfers of capital to lifetime gifts
with the introduction of Capital Transfer Tax with effect from 26 March 1974.
(IHT) was introduced by the Finance Act 1986 to replace Capital Transfer Tax
and applies to all transfers made on or after 18 March 1986. The legislation is now mainly found in the
Inheritance Tax Act (IHTA) 1984. Section 156 and Schedule 20 Finance Act 2006
introduced new IHT rules for assets held in trust.
applies to “transfers of value” (therefore it does not apply if an asset is
sold, so long as it is at the full market value) whether made during lifetime
or on death. These are transfers that
reduce the value of the transferor’s (the person making the transfer) estate.
Tax is charged, usually on the transferor, by measuring the loss to the
transferor’s estate, rather than by reference to the benefit received by the
IHT is a
cumulative tax. A chargeable transfer
remains in the transferor’s accumulation for seven years. After seven years the transfer is no longer
taxable, but may continue to be relevant in certain circumstances.
Hopefully, these will give you a firm grounding on this issue, whether you require urgent help, or simply wish to know more about this particular form of taxation.
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