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as per the tax tables for tax yr 24-25, the lifetime rate is 20% and death rate is 40%. then from where does 25% charge on transferor come into picture? even acca study hub has mentioned this 20/80 rule nd 25% tax rate when donor is paying. can u clarify this 20% and 25% rates confusion
The lifetime rate of IHT is 20% on any part of the transfer into a trust which is in excess of the available nil rate band (NRB). If the trustees are paying the tax, then it’s just 20% of the excess. If the donor is paying the tax (and if the question is silent you assume that the donor is going to pay), then the excess over the NRB is treated as being net of 20% tax, which is 80%. Therefore if you divide by 80 and multiply by 20 (20/80) the resulting figure is the tax. 20/80 is the same as 25%. I hope this clears it up for you.
yes this was very clear thank u . but suppose the qtn says value of transfer is 400000 how much iht is paid on this clt? then how do we calculate? shld we do 400000-3000(being ae) -325000(being nrb)=72000 so donor pays 25% on this 72000? so iht paid will be 18000?
That’s correct, but check if last years’ AE is available as you could be deducting a total of £6,000 for AEs rather than £3,000. The tax paid by the donor is added in to the net CLT to find the gross CLT (gross chargeable transfer) so going off your figures that would be:
Net CLT (after AE) = £397,000
Tax paid by donor = £18,000
Gross CLT = £415,000We add the tax in when the donor has paid as we need the total loss to the donor, which includes the tax. This gross chargeable transfer of £415,000 will then reduce the NRB for the next 7 years.
coming to the marriage allowance that is 5000 for parents , suppose mother nd father each gave their son 5000. so for the son iht purpose , is only total of 5000 exempt, or 5000+5000=10000 is exmept?
another qtn, suppose deacesed person has estate that also consists of insurance policy with market value of 100000 but only payabel 60000 to executors, do we charge iht on this?
also if the proceeds from poicly were payable ,to a particularly named person, would the proceeds then also be subject to iht charge?coming to the marriage allowance that is 5000 for parents , suppose mother nd father each gave their son 5000. so for the son iht purpose , is only total of 5000 exempt, or 5000+5000=10000 is exmept?
Answer: each parent gets the £5,000 exemption, so it would be a total of £10,000.
another qtn, suppose deacesed person has estate that also consists of insurance policy with market value of 100000 but only payabel 60000 to executors, do we charge iht on this?
also if the proceeds from poicly were payable ,to a particularly named person, would the proceeds then also be subject to iht charge?Answer: if the policy is on the life of the deceased, then it’s the proceeds of £60,000 that is relevant. If it states that it’s paid to a named person (eg a daughter) then the amount to include in the death estate is ZERO (as the £60,000 is the daughter’s asset, not the deceased’s). If it doesn’t state that it’s paid to a named person then the £60,000 is included in the death estate.
this is a qtn from kaplan exam kit
.melvin died on 6 march 2025 leaving an estate worth 2000000. his estate included a holiday home in uk worth 400000 which e left to his sister. he left the rest of his estate to his daughter nd appointed a frnd to act as executor. who suffers iht here nd who pays iht?The sister gets the holiday home ‘tax free’ as specific gifts of UK assets do not bear their own tax.
The executors pay any tax due on the entire estate.
The daughter is known as the ‘residual legatee’ as she gets the assets, less the holiday home, less the entire tax on the death estate (i.e. the residue of the estate) and therefore she’s the person who suffers the tax.
how do we know which ones r tax free? like in this example the qtn did not state holdiay home is tax free right
Because there’s a general rule that states: ‘specific gifts of UK assets do not bear their own tax’, meaning that if a UK asset is left to a named (specific) person, that specific person does not pay the tax, rather the tax is borne by the residual legatee.
so sisters brothers or any relatives do not come under residual legatee? residual legatee means only children?
The residual legatee can be anyone. It’s the person who gets the leftovers (residue) of the estate after everyone (including HMRC) has had their share.
so u mean suppose i hv a flat and a bunglow and few other chattels. i gave my flat to my sis nd my bunglow to my child, with some other chattels also being transfereed to my child, so here except for flat, the remianing estate of mine is going to my child, my child sufferes tax on whole estate including the flat?
coming to isa it is included in death estate calculation. what abt any funds invested in pension funds
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