INTM820511 - Examples: Effect of minimum rate & IHT

Facts
Find the relevant values for the formula
Calculate the formula result
Is there an increased charge?
Which assets are eligible for clearance?

Facts

Mr A had a business on which he did not disclose tax liabilities (either VAT or direct tax), and put all the income arising from that business in a Swiss account. He died in 2005. The Swiss account then held a total £500k, which was inherited by Mrs B as sole beneficiary. She was also the executor of Mr A’s estate. She opened a new account in Switzerland, but no IHT was paid.

-	Amount	-
31/12/2005	£500,000	cb
Interest and gains	£20 k pa	£100k
31/12/2010	£600,000	C8
Interest and gains	£25k p.a	£50k
31/12/2012	£650,000	C10

Find the relevant values for the formula

n = 5

C10 C8, so Cr is C10 = £650,000

So C9 = 650,000 x 103% = £669,500

So C10 = 650,000 x 106% = 689,000

Calculate the formula result

T=	34% x	{[2/3(650,000 - (5/8 x 500,000)]	[1/3((5/10 x 650,000) +	2/10(669,500 +
-	-	+	-	689,000/2))]}
T=	34% x	{[2/3(650,000 - 312,500)] +	[1/3(325,000 + 2/10(679,250)]}	-
T=	34% x	{[2/3 x 337,500] +	[1/3(325,000 + 135,850)]}	-
T=	34% x	{225,000+ 153,617}	-	-
T=	34% x	378,617	-	-
T=	£128,730	-	-	-

Is there an increased charge?

tc = T / Cr

tc = 128,730 / 650,000 = 0.198

tc

But tc

So T = 650,000 x 21% = £136,500

Which assets are eligible for clearance?

Maximum value of cleared assets = Cr

Cr = £650,000

The value of assets in the account at any time between 31/12/10 and 31/12/12 inclusive does not exceed £650,000.

Therefore all the assets in the account at 31/12/12, with total value £650,000, were eligible for clearance