3 INHERITANCE TAX.pdf

INHERITANCE TAX, PART 1 RELATED LINKS ? PDF version In the Paper F6 (UK) exam, there will always be a minimum of five marks on inheritance tax. This two-part article will look at those aspects of inheritance tax that you need to know, with this first article explaining the scope of inheritance tax 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 candidates 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 scope of inheritance tax IHT is paid on the value of a person’s estate when they die, but it also applies to certain lifetime transfers of assets. If IHT did not apply to lifetime transfers it would be very easy for a person to avoid tax by giving away all of their assets just before they died. As far as Paper F6 (UK) is concerned the terms ‘transfer’ and ‘gift’ can be taken to mean the same thing. The person making a transfer is known as the donor, while the person receiving the transfer is known as the donee. Unlike capital gains tax where, for example, a principal private residence is exempt, all of a person’s estate is generally chargeable to IHT. A person who is domiciled in the UK is liable to IHT in respect of their worldwide assets. As far as Paper F6 (UK) is concerned, people will always be domiciled in the UK. Transfers of value During a person’s lifetime IHT can only arise if a transfer of value is made. A transfer of value is defined as ‘any gratuitous disposition made by a person that results in a diminution in value of that person’s estate’. There are two important terms in this definition: ? Gratuitous: Poor business deals, for example, are not normally transfe