Chapter 4 - Inheritance tax (IHT)

Question 1

Harriet has just gifted £350,000 into a discretionary trust for her grandchildren. This is the only gift she has made during her lifetime. How much would the immediate inheritance tax liability be, assuming it is paid by the trustees?

Select one:

a. £5,000.
b. £10,000.
c. £7,600.
d. £3,800.

Answer 1

d. £3,800.

chapter reference 4B3

Question 2

Milly, who was unmarried, died in May 2021 leaving an estate to her adopted daughter of £575,000, including her house worth £200,000. She had not made any lifetime gifts. What inheritance tax liability would be payable on Milly’s estate?

Select one:

a. £40,000.
b. £30,000.
c. £100,000.
d. £50,000.

Answer 2

b. £30,000.

chapter reference 4A1-2

Question 3

Penny and Gareth are about to get married. Penny’s mother and both of Gareth’s parents are still alive, as are both of Gareth’s grandmothers. Excluding gifts within their annual allowances, what is the maximum amount of exempt lifetime gifts that can be given by these surviving parents and grandparents on the event of their marriage for inheritance tax purposes?

Select one:

a. £12,500.
b. £20,000.
c. £25,000.
d. £17,000.

Answer 3

b. £20,000.

Correct, chapter reference 4B1E

Question 4

All of these gifts would be treated as potentially exempt transfers for inheritance tax purposes, APART from a:

Select one:

a. gift to adult children, not under any trust.
b. gift to a bare trust for the benefit of children under 18.
c. transfer to a discretionary trust for the benefit of children and grandchildren.
d. transfer to a disabled trust for the benefit of a friend with a mental disorder.

Answer 4

c. transfer to a discretionary trust for the benefit of children and grandchildren.

Correct, chapter reference 4B2F

Question 5

Colin, a bachelor, died leaving his home and personal effects worth £700,000, collective investments of £300,000, and a share in a partnership valued at £90,000. Assuming all his assets were owned for over 5 years, he had not made any previous gifts and he has no direct descendants, how much inheritance tax would be payable on his estate?

Select one:

a. £230,000.
b. £270,000.
c. £266,000.
d. £306,000.

Answer 5

b. £270,000.

chapter reference 4C1A

Question 6

Nkasi has a set of four antique vases valued at £50,000 and she gifts one of them to her son. The value of a single vase is £10,000 and the remaining three vases are valued at £35,000. What is the loss to Nkasi’s estate for inheritance tax purposes?

Select one:

a. £35,000.
b. £15,000.
c. £50,000.
d. £10,000.

Answer 6

b. £15,000.

chapter reference 4A5A

Question 7

Gavin is UK domiciled. He has a house and other assets in the UK worth £600,000, a holiday home and bank accounts in Spain worth £300,000, and bank accounts in the USA worth £100,000. What is the value of his estate for inheritance tax purposes?

Select one:

a. £600,000.
b. £900,000.
c. £400,000.
d. £1,000,000.

Answer 7

d. £1,000,000.

chapter reference 4A4

Question 8

Lisa is married to Jake and both are UK domiciled. She had a portfolio of £250,000 shares and has just transferred 50% of her portfolio to him, 25% to her son and 25% to a local charity. For inheritance tax purposes, ignoring the annual exemption, how much is exempt?

Select one:

a. Nil.
b. £187,500.
c. £250,000.
d. £125,000.

Answer 8

b. £187,500.

Correct, chapter reference 4B1A & 4B1E

Question 9

Carly died in July 2021 leaving an estate of £560,000 which did not include any property. She had made a gift to a discretionary trust of £200,000 [after using the annual exemptions] for her grandchildren in April 2016. Assuming no other gifts or reliefs, how much inheritance tax, if any, would be due on her estate?

Select one:

a. £174,000.
b. Nil.
c. £224,000.
d. £94,000.

Answer 9

a. £174,000.

Correct, chapter reference 4A1

Question 10

Patrick, who is UK domiciled, gifted £450,000 to his wife Astrid, who is not domiciled in the UK and has no intention of being so. How much of this gift will be exempt from inheritance tax assuming he has made no previous gifts?

Select one:

a. £450,000.
b. £331,000.
c. £325,000.
d. £55,000.

Answer 10

b. £331,000.

chapter reference 4B1A

Question 11

When James died recently, he was neither resident nor domiciled in the UK. His estate included a portfolio of UK Government securities. What is the position of his portfolio for UK inheritance tax [IHT]?

Select one:

a. It is always liable for IHT.
b. It is not liable to IHT.
c. It is liable for IHT but only if he had a UK domiciled spouse.
d. It is liable for IHT at a reduced rate.

Answer 11

b. It is not liable to IHT.

Correct, chapter reference 4A4

Question 12

Joe died in August 2021 leaving his estate worth £800,000 to his non-domiciled wife. The estate did not include a house and, assuming no other gifts or reliefs, how much UK inheritance tax, if any, would his wife have to pay?

Select one:

a. None.
b. £110,000.
c. £190,000.
d. £60,000.

Answer 12

d. £60,000.

chapter reference 4B1A

Question 13

Thomas, who was unmarried and never owned his own house, died in June leaving an estate of £500,000. In the seven years prior to his death, he made chargeable lifetime transfers [after exemptions] totalling £150,000. How much of the nil rate band remains to be applied to Thomas’ estate on his death?

Select one:

a. £175,000.
b. £150,000.
c. £350,000.
d. £325,000.

Answer 13

a. £175,000.

chapter reference 4A1

Question 14

Joanna, who had never married, died leaving an estate of £1,500,000, including her main residence worth £500,000, to be shared equally between her favourite charity and her son Micky. If the full nil-rate band is available, how much would Micky receive after the payment of inheritance tax?

Select one:

a. £650,000.
b. £651,000.
c. £580,000.
d. £660,000.

Answer 14

d. £660,000.

Correct, chapter reference 4G2

Question 15

William died leaving his entire estate to his friend Sarah. The estate was worth £400,000, on which inheritance tax of £34,000 was paid. Sarah has just died, 18 months after William, leaving an estate worth £650,000. How much quick succession relief is available?

Select one:

a. £27,200.
b. £24,888.
c. £34,000.
d. £31,110.

Answer 15

b. £24,888.

chapter reference 4B4D

Question 16

Barry gifted £500,000 to his son in May 2016. He had used up his gift exemptions for the 2015/16 and 2016/17 tax years. How much inheritance tax, if any, would be payable on the gift if Barry were to die in December 2021?

Select one:

a. £70,000.
b. Nil.
c. £42,000.
d. £28,000.

Answer 16

d. £28,000.

chapter reference 4B2D

Question 17

Anna, who has made lifetime gifts in excess of the nil rate band in the last seven years, would like to make a further gift of £50,000 into a discretionary trust. If she pays the inheritance tax herself, the loss to her estate will be:

Select one:

a. £83,333.
b. £70,000.
c. £60,000.
d. £62,500.

Answer 17

d. £62,500.

chapter reference 4F4

Question 18

Derek retired to Spain and lived there until his recent death. He was still domiciled in the UK. On his death he owned a house in the UK valued at £300,000, a house in Spain valued at £200,000 and a Spanish bank account with a balance of £20,000. The value of Derek’s estate for UK inheritance tax purposes is:

Select one:

a. £300,000.
b. £320,000.
c. £520,000.
d. £500,000.

Answer 18

c. £520,000.

Correct, chapter reference 4B4A

Question 19

All of these are chargeable transfers for inheritance tax purposes, APART from a[n]:

Select one:

a. transfer of £15,000 to an absolute trust.
b. interest-free loan of £10,000 that is written off on death.
c. interest-free loan of £100,000 repayable on demand or death.
d. gift of £50,000 to an individual.

Answer 19

c. interest-free loan of £100,000 repayable on demand or death.

chapter reference 4A5A

Question 20

Vasos has set-up an investment for the benefit of his grandchildren into which he makes substantial regular contributions. He funds it out of his routine outgoings and these don’t impact on his standard of living. In terms of inheritance tax, this would be regarded as a[n]:

Select one:

a. exempt expense.
b. exempt transfer.
c. potentially exempt transfer.
d. chargeable transfer.

Answer 20

b. exempt transfer.

Correct, chapter reference 4B1D

Question 21

In October 2021, Declan gifted £500,000 to a trust. This is treated as a potentially exempt transfer because it was gifted to a[n]:

Select one:

a. bare trust.
b. charitable trust.
c. interest in possession trust.
d. discretionary trust.

Answer 21

a. bare trust.

chapter reference 4B2F

Question 22

Eva has made the following lifetime transfers: £210,000 into a discretionary trust in 2017, £500,000 into a bare trust in 2020, and £150,000 into a discretionary trust in 2021. The transfer[s] which resulted in an immediate lifetime IHT liability was[were]:

Select one:

a. only the transfer made in 2021.
b. the transfers made in 2020 and 2021.
c. all of the transfers.
d. the transfers made in 2017 and 2021.

Answer 22

a. only the transfer made in 2021.

chapter reference 4B3

Question 23

Anna died in August 2021 leaving an estate of £1,400,000. She has made no previous transfers or gifts and the estate did not include any residential property. In her will she leaves £200,000 to charity and the remainder is split equally between her husband, George, and daughter, Lisa. How much inheritance tax will be payable on her estate?

Select one:

a. £99,000.
b. £110,000.
c. £350,000.
d. £480,000.

Answer 23

a. £99,000.

chapter reference 4B4B/4B4C

Question 24

Clive has inherited a business from his father. He has been advised that the business is NOT eligible for any business relief for inheritance tax purposes. This could be because:

Select one:

a. his father owned the business for only 18 months before he died.
b. his father was a sole trader.
c. the business was set up as a partnership.
d. the majority of the inheritance consisted of property.

Answer 24

a. his father owned the business for only 18 months before he died.

Correct, chapter reference 4C1

Question 25

Gerry wants to give some money to his daughter on her wedding day and wishes to utilise the various exemptions available to him so as to avoid any inheritance tax consequences. Assuming he has made no gifts at all to date, Gerry can give her:

Select one:

a. £8,500.
b. £5,000.
c. £11,000.
d. £11,250.

Answer 25

c. £11,000.

Correct, chapter reference 4B1B/4B1E

Question 26

Simon wishes to make a gift in consideration of marriage to his fiancée, Louise. For the gift to be treated as exempt for inheritance tax purposes, its value must NOT exceed:

Select one:

a. £5,000.
b. £2,500.
c. £1,000.
d. £3,000.

Answer 26

b. £2,500.

chapter reference 4B1E

Question 27

Robert gifted £4,000 in 2019/20 to his daughter Sue on her marriage, then gifted £1,500 in 2020/21 to his son George, and would like to gift some more money to his grandson Peter in the 2021/22 tax year. How much can he gift within his available inheritance tax annual exemption limit for lifetime transfers?

Select one:

a. £4,500.
b. £5,000.
c. £3,000.
d. £6,000.

Answer 27

a. £4,500.

Correct, chapter reference 4B1B/4B1E

Question 28

Denise, who was unmarried, died in August 2021, two and a half years after making a potentially exempt transfer of £500,000. If there are no other previous transfers to take into account, what, if anything, would the inheritance tax liability on the potentially exempt transfer be?

Select one:

a. £70,000.
b. Nil.
c. £67,600.
d. £54,080.

Answer 28

c. £67,600.

chapter reference 4B2C/4B2D

Question 29

Diana makes an interest-free loan to her son. It will NOT be treated as a transfer of value as:

Select one:

a. the loan was used to buy a residential property.
b. her son is resident is Spain.
c. the loan is repayable upon Diana’s death.
d. the loan is repayable upon her son’s death.

Answer 29

c. the loan is repayable upon Diana’s death.

Correct, chapter reference 4A5A

Question 30

In 2020/21 Harold gifted £1,500 to his brother. The maximum inheritance tax-exempt amount he can gift to his sister in 2021/22 is:

Select one:

a. £4,500.
b. £3,000.
c. £3,250.
d. £4,750.

Answer 30

a. £4,500.

Correct, chapter reference 4B1B

Question 31

Sandra, who has previously used up all of her nil rate band, wishes to make a chargeable lifetime transfer. She plans to pay the lifetime inheritance tax herself and the net gift is to be £30,000. The loss to her estate for inheritance tax purposes will be:

Select one:

a. £50,000.
b. £37,500.
c. £42,000.
d. £36,000.

Answer 31

b. £37,500.

chapter reference 4F4

Question 32

Jack died on 20 May 2020 leaving his whole estate to his friend, Amanda. The estate was worth £400,000, on which tax of £30,000 was paid. Amanda died on 14 November 2021 with an estate worth £600,000, including the inheritance. How much IHT would be payable by Amanda’s sole beneficiary, her sister?

Select one:

a. £85,025.
b. £87,800.
c. £110,000.
d. £82,500.

Answer 32

b. £87,800.

Correct, chapter reference 4B4D