An area likely to feature in the Advanced Tax September 2021 exam is the inheritance tax exemptions.

There are only 3 exemptions that are available for both lifetime transfers and the death estate

The first and most important is the spouse exemption. For this to apply the couple must be legally married and not just living together. If the donor is UK domiciled and the spouse is non-UK domiciled, then the spousal exemption is restricted to just £325,000 which is easy to remember as it is same as the nil rate band given in the tax rates.

However, to benefit from the unlimited interspousal exemption, the spouse can make an irrevocable election to be treated as UK domiciled. The disadvantage now is the spouse would be subject to IHT on the worldwide assets instead of just the UK assets.

The second exemption is the charities exemption which is available for both lifetime gifts and the death estate. If the charitable legacy is on death, then a reduced rate of 36% applies if at least 10% of the baseline amount is left to a charity. Don’t forget to add back the RNRB Of £175,000 and the charitable legacy to compute the baseline amount for the 10% test.

The final exemption available for both lifetime gifts and the death estate is the political party exemption. The political party must have at least 2 MPs or 1 MP and 150,000 votes

Tax is technical and I recommend you get a copy of Advanced Tax Condensed to help you. This uses accelerated learning techniques to quickly master the key information. They dramatically speed up your rate of learning and can be easily referenced when attempting exam questions.

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