inheritance tax

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inheritance tax

broadly, a tax on wealth transfers i.e. gifts made in lifetime or on death. The main charge is on everything beneficially owned at death, including property in which the deceased had an INTEREST IN POSSESSION. To prevent deathbed gifts being used to avoid the tax, gifts made within seven years of death are also charged but are POTENTIALLY EXEMPT TRANSFERs (PET) in the meantime. However, some lifetime gifts are immediately chargeable if the assets are transferred into certain types of discretionary trust. Whilst within such trusts and on exiting them, the assets are liable to a special regime of inheritance tax. The territorial scope of the tax is determined by the domicile of the individual. Those who are domiciled in the UK are chargeable on their worldwide assets and those who are not on assets situated in the UK. The value chargeable may be reduced by AGRICULTURAL PROPERTY RELIEF or BUSINESS PROPERTY RELIEF. Exemptions can apply for small gifts, maintenance payments, wedding gifts, gifts to charities and national museums and certain other bodies. Some of these exemptions have monetary limits. There is a taxable threshold below which the rate is zero. Earlier gifts obtain the benefit of this threshold before later gifts. In determining the tax on the assets held at death, a deduction is allowed for funeral expenses and debts outstanding, including any unpaid taxes. The primary responsibility for paying the tax relating to a lifetime gift which has become chargeable falls upon the recipient. Tax payable on the estate of the deceased is primarily payable by the executors, except to the extent of any tax relating to property held in a trust in which the deceased had an interest in possession, which is payable from the assets of that trust. It is possible to vary an inheritance after the death if all the beneficiaries who would inherit less as a result of the change so agree. This can result in significant reductions in the inheritance tax liability. However, the variation must be made within two years of the death and the instrument of variation must state that it is to take effect for inheritance tax purposes. Any inheritance tax is calculated as if the variation was effectively backdated to the date of death. A similar provision can be applied for CAPITAL GAINS TAX.
References in periodicals archive ?
Federal and State Estate Tax Adjustment (present in the 1976 carryover tax basis rule).
This assumes that, at the time of A's death, the laws in effect for 2000 apply, and that A dies in a "pick-up state," which imposes state estate tax in an amount equal to the state death tax credit.
In a situation involving a taxpayer whose mental competency is waning and therefore may be on the precipice of being unable to form the intent to change domicile for state estate tax or inheritance tax purposes, the issue of changing domicile becomes a complete quagmire.
5 million from paying the state estate tax on their "natural resource" wealth.
Currently, there are 32 states that impose no state estate tax.
In New York, the estate's representative or a family member must file a Form ET-141, New York State Estate Tax Domicile Affidavit, which asks for the decedent's address at the date of death and whether the decedent ever lived in New York or owned any real property in the state.
Thus, these gifts will trim her estate's eventual exposure to state estate tax.
Also, while individuals and couples with estates valued at less than $5 and $10 million, respectively, need not be concerned about federal estate tax, Shakter says they may need life insurance to cover state estate tax, which some 20 states decoupled from the federal tax in 2001.
Roughly one-third of the states and the District of Columbia impose a state estate tax, and in many of these jurisdictions, the available exemption from the state estate tax is significantly less than the available Federal estate tax exemption.
The heirs of small-business owners, farmers and timberland owners should be able to inherit properties from their families without having to sell off portions to pay a state estate tax.
In determining the viability and efficacy of portability planning, the following list of factors should be considered: cost, benefit, magnitude of the couple's estate, size of anticipated unused exemptions, ages, asset protection, marital status, growth of assets, desire for generational planning, and state estate tax concerns.

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