One aspect I felt many tax students neglect is the IHT death estate. You need to put all assets into the death estate including exempt assets for CGT.
Deduct any agricultural property relief on farms (100%) and business property relief (100%) on unquoted shares.
Controlling interests in quoted companies get 50% BPR.
Businesses must be owned for 2 years in order to get BPR.
Farms that are owner occupied also need to be owned for 2 years while tenanted farms need to be owned for 7 years to get APR.
The assets are valued based on market value at death which is also called probate value.
You then must deduct exempt legacies (spouse, charities, and political parties) and expenses like credit card debts, tax in the year of death and reasonable funeral expenses.
If the main residence is left to a direct descendant, the death estate is eligible for a residence nil rate band of £175,000.
Usually, part of the nil rate band is consumed by lifetime transfers so not 100% is available on the death estate.
If 10% of the baseline amount (add back any RNRB and charitable legacy) is left to a charity, then tax the death estate at 36% instead of 40%.
Once you have computed the tax, deduct quick succession relief if any assets were taxed twice in the last 5 years based on the formula (original tax x original asset/ original death estate x QSR%). Just remember 2 deaths in 1 year is 100% and then reduce by 20% for each successive year.
Finally, if any overseas assets have suffered tax, deduct double tax relief based on the lower of UK tax and overseas tax (given). Here, you need to find the UK estate rate to 3 decimal places (tax after QSR / chargeable estate before NRB) and multiply it by the overseas asset.
This tax is payable by the executors or personal representatives 6 months after the month of death. Remember that for instalment property (buildings and businesses that do not get BPR) tax can be paid in 10 annual instalments.
If you are planning on doing Advanced Tax in June 2023 or September 2023, I recommend you purchase Advanced Tax Condensed which will allow you to learn the technical rules.
If you then practice the key questions I recommend, you too will be ready for anything the examiner throws at you.
The book will really make the difference. You can purchase it using the link below:
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