Inheritance Tax Exam Notes

Inheritance tax is charged on ‘the value transferred by a chargeable transfer’. The
term ‘chargeable transfer’ is defined as ‘a transfer of value which is made by an
individual but is not an exempt transfer’ (IHTA 1984, ss 1, 2).

STEP 1: IDENTIFY THE TRANSFER OF VALUE
A person’s estate is defined by IHTA 1984, s 5(1) to mean all the property to which
he was beneficially entitled immediately before his death, with the exception of
‘excluded property’. Property included within this definition falls into three
categories:

(a) Property which passes under the deceased’s will or on intestacy.
The deceased was ‘beneficially entitled’ to all such property immediately before he
died.

(b) Property to which the deceased was ‘beneficially entitled’ immediately before his
death but which does not pass under his will or on intestacy.
This applies to the deceased’s interest in any joint property passing on his death by
survivorship to the surviving joint tenant(s). In most cases, the deceased will be
taken to have owned an equal share in the property with the other joint tenant(s).

(c) Property included because of special statutory provisions.
By statute, the deceased is treated as having been ‘beneficially entitled’ to certain
types of property which would otherwise fall outside the definition. These rules apply
to:
(i) certain trust property; and
(ii) property given away by the deceased in his lifetime, but which is ‘subject to a
reservation’ at the time of death

Property outside the estate for IHT purposes
 Life assurance policy, once it is written in trust for a named beneficiary (proceeds
are no longer payable to the deceased's estate)
 Discretionary lump sum payment made from a pension fund to the deceased's
family (pension trustees are not obliged to pay it to the deceased's estate)

Excluded property
 Reversionary interest (future interest under a settlement)



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, STEP 2: FIND THE VALUE TRANSFERRED
 Assets in the estate are valued for IHT purposes at ‘the price which the property
might reasonably be expected to fetch if sold in the open market’ immediately
before the death (IHTA 1984, s 160).
 The value of an asset agreed for IHT purposes is known as the ‘probate value’.
 The IHTA 1984, s 171 provides that, where the death causes the value of an
asset in the estate to increase or decrease, that change in value should be taken
into account.

Quoted shares
The value of quoted shares is taken from the Stock Exchange Daily Official List for
the date of death / or nearest trading day; 1/4 of the difference between the lower
and higher price is added to the lower price.

Debts and expenses
 Deductible for IHT purposes provided that they were incurred for money or
money’s worth (IHTA 1984, s 505).
 Reasonable funeral expenses are also deductible (IHTA 1984, s 162).

STEP 3: APPLY ANY RELEVANT EXEMPTIONS AND RELIEFS
Spouse or civil partner
Section 18 of the IHTA 1984 provides as follows: A transfer of value is an exempt
transfer to the extent that the value transferred is attributable to property which
becomes comprised in the estate of the transferor’s spouse or civil partner); the
exemption does not apply to co-habitees.

Charity
The IHTA 1984, s 23(1) provides as follows: Transfers of value are exempt to the
extent that the values transferred by them are attributable to property which is given
to charities. A similar exemption applies to gifts to certain national bodies and bodies
providing a public benefit, such as museums and art galleries, and to political parties.

Business and agricultural property




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