This month's theme: IHT

As part of Tolley’s commitment to helping accountants get to grips with specialist tax issues we’ll be sharing a series of in-depth extracts from various products in Tolley’s portfolio. This selection looks at some of the practical effects of the new IHT provisions in Finance Bill 2013.

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Resources

Increase in spouse exemption

The lifetime exemption for transfers from UK domiciled spouses and civil partners to their non-UK domiciled partners has been capped at £55,000 since 1983. Responding to criticism from the European Commission that the low threshold was discriminatory, Finance Bill 2013 introduces a welcome increase in the limit.

Election for UK domicile

Another new provision relating to non-UK domiciled spouses and civil partners is the election to be treated as UK domiciled. The obvious advantage in making such an election is that the exemption for transfers from the UK domiciled spouse or civil partner becomes unlimited.

When should the election for UK domicile be made?

A death election by a non-UK domiciled person is the most useful option. Indeed, the circumstances in which a lifetime election could be useful are somewhat remote, since gifts between individuals qualify as PETs to the extent that they are not exempt.

Deductions for liabilities

Finance Bill 2013 has introduced anti-avoidance provisions on the deduction of liabilities aimed at some esoteric tax saving arrangements. Coincidentally, or perhaps intentionally, the new rules also have a wide application to a more basic type of tax planning, which all business advisers should be aware of.

Avoidance schemes

Some of the tax arrangements affected by these new measures include...

Business loans

Aside from artificial schemes, the new measures will affect ordinary UK businesses. It is common for business owners to obtain finance for their enterprise by mortgaging their home, since it may be the only asset deemed suitable as a security.

Extract from: Increase in spouse exemption

This article looks at one of the practical effects of the new IHT provisions in Finance Bill 2013:

  • an increase in spouse exemption for transfers to non-UK domiciled spouses and civil partners

Throughout this article, references to spouses include civil partners; the term ‘partner’ means both a member of a married couple and a registered civil partnership.

The lifetime exemption for transfers from UK domiciled spouses and civil partners to their non-UK domiciled partners has been capped at £55,000 since 1983. Responding to criticism from the European Commission that the low threshold was discriminatory, Finance Bill 2013 introduces a welcome increase in the limit. With effect from 6 April 2013, it is increased to £325,000 and will thereafter match the level of the nil rate band. As a result, a UK domiciled spouse will be able to transfer twice the value of the nil rate band to his non-UK domiciled partner before incurring a tax liability.

IHTA 1984 s18 (2)

Remember, though, that the non-domiciled spouse exemption is a lifetime limit, whereas the nil rate band is refreshed every seven years. For lifetime gifts that exceed the spouse exemption, the balance is initially a potentially exempt transfer (PET) which only becomes chargeable if the donor dies within seven years.

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