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Understanding inheritance tax (IHT) on lifetime transfers

UP to 60 CPD minutes

Module description

Introduction
Inheritance tax can severely impact what can be passed on to future generations. But with the right planning the effect of IHT can be minimised. It is therefore essential for advisers when considering wealth transfer to understand the taxation of lifetime gifts. Advisers need to fully understand the associated risks, importance of timing and options to protect existing valuable benefits before giving advice to a client in relation to moving their DC pensions.

This module is in two sections and should take around 60 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 60 minutes can be claimed.
Outcomes
On completion of this module you should be able to:
  • Describe whether a transfer is exempt, potentially exempt or chargeable
  • Explain how gifts made within seven years of death may be taxed
  • Determine what IHT relief or exemptions may be available on lifetime gifts

Learning material

IHT on lifetime transfers

This section of the module highlights when tax may be payable on the lifetime transfer and how any IHT charge would be calculated. In addition it covers the implications of retaining a benefit from gifted property and also when relief may be available.

CPD minutes: up to 30

Read the IHT on lifetime transfers guideOpens in new window
IHT exemptions and reliefs

This section of the module includes the range of exemptions available when making lifetime gifts of capital and also how regular gifts of surplus income may be exempt from IHT. In addition the guide looks at how taper relief can reduce the tax payable when a client dies within seven years of making the gift.

CPD minutes: up to 30

Read the IHT exemptions and reliefs guideOpens in new window

Post learning assessment

Question 1
Which of the following is NOT an exempt transfer?

a. A gift between UK domiciled spouses
b. A £5,000 gift by a parent in consideration of marriage
c. Regular gifts of surplus income
d. A gift of £1,000,000 from a UK domiciled wife to her non-UK domiciled husband
Question 2
Which of the following statements is FALSE?

a. Taper relief will not apply if the gift is within the nil rate band
b. Taper relief only applies to gifts made more than 3 years before death
c. There’s no taper relief available on chargeable life transfers (CLTs) where the donor failed to survive seven years
d. Taper relief reduces the tax payable not the value of the gift
Question 3
Which of the following will not be allowable income for the normal expenditure out of income exemption (gifts from surplus income)?

a. Withdrawals from an investment bond
b. ISA income
c. Pension drawdown income
d. Trust income

Check your answers

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Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.