IHT: Anti-Avoidance Flashcards
Which of the following best describes a Gift with Reservation of Benefit (GROB)?
A. A gift that is exempt if the donor survives three years.
B. A gift where the donor retains a benefit from the property.
C. A trust created solely for minor beneficiaries.
D. A gift made to a registered charity.
B. A gift where the donor retains a benefit from the property.
Explanation: A GROB occurs when someone gives away an asset but continues to benefit from it, causing it to stay part of their taxable estate for IHT purposes.
Under the Pre-Owned Assets Charge (POAC), what kind of tax is payable?
A. Inheritance Tax
B. Income Tax
C. Capital Gains Tax
D. Corporation Tax
B. Income Tax.
Explanation: POAC is an annual income tax charge when an individual continues to benefit from property they previously gave away.
When does Taper Relief apply to reduce Inheritance Tax?
A. When a gift was made more than 14 years before death.
B. When an asset was transferred into trust after death.
C. When a lifetime transfer occurred 3–7 years before death.
D. When a PET becomes exempt immediately.
C. When a lifetime transfer occurred 3–7 years before death.
Explanation: Taper relief reduces IHT payable on PETs or LCTs if the donor survives between 3 and 7 years after making the gift.
What is the purpose of the General Anti-Abuse Rule (GAAR)?
A. To encourage aggressive tax planning.
B. To allow double taxation on income.
C. To penalise abusive tax avoidance.
D. To remove the need for inheritance tax.
C. To penalise abusive tax avoidance.
Explanation: The GAAR counters abusive tax arrangements that exploit legislation against its intended purpose.
In the context of IHT, when can a loan be deducted from the estate?
A. Only if the loan funded holidays.
B. Only if the loan is unpaid.
C. Only if the loan is repaid from the estate.
D. Only if the loan funded a qualifying foreign currency account.
C. Only if the loan is repaid from the estate.
Explanation: Loans are deductible only if they are actually repaid from the estate. Unpaid loans to family members often are not deductible.
What is the Ramsay Principle?
A. A focus on the commercial purpose behind tax arrangements.
B. The strict literal interpretation of tax laws.
C. A new type of Inheritance Tax exemption.
D. A method for valuing foreign property.
A. A focus on the commercial purpose behind tax arrangements.
Explanation: Under Ramsay, courts look at the true substance of transactions, not just their legal form, to prevent avoidance.
Which asset transfer would NOT be caught under the Pre-Owned Assets Charge (POAC)?
A. Gift of a house with continued occupation.
B. Gift of chattels with continued use.
C. Gift of shares later converted to a car used by donor.
D. Arm’s length sale of property to an unrelated buyer.
D. Arm’s length sale of property to an unrelated buyer.
Explanation: POAC does not apply to commercial, arm’s length sales where no disguised benefit is retained.
What happens if a GROB still exists at the donor’s death?
A. The gifted asset is taxed at its death value.
B. The gifted asset is exempt from IHT.
C. The gifted asset is taxed at its gift value.
D. The donor’s beneficiaries must pay capital gains tax immediately.
A. The gifted asset is taxed at its death value.
Explanation: If the donor still benefits at death, the asset is included at its death value in the estate for IHT
How does DOTAS (Disclosure of Tax Avoidance Schemes) help HMRC?
A. It reports aggressive tax planning early.
B. It allows clients to avoid tax penalties.
C. It automatically cancels all tax savings.
D. It reduces tax rates for charities.
B. It reports aggressive tax planning early.
Explanation: DOTAS ensures that HMRC learns about potentially abusive tax avoidance arrangements as soon as possible.
Under what circumstance could a Pre-Owned Assets Charge (POAC) election be avoided?
A. If the transaction is under £10,000.
B. If the donor opts to apply the GROB rules instead.
C. If the donor moves abroad.
D. If the donor is over 80 years old.
B. If the donor opts to apply the GROB rules instead.
Explanation: If property could fall under both POAC and GROB, the individual can elect for it to be treated under GROB rules.
What is an example of a transaction likely to be NOTIFIABLE under DOTAS?
A. Making an outright cash gift to a child.
B. Setting up an ordinary trust for grandchildren.
C. Leaving assets to a spouse via a will.
D. Creating a reversionary lease to children set far into the future.
D. Creating a reversionary lease to children set far into the future.
Explanation: Highly contrived steps like a far-future reversionary lease would trigger DOTAS reporting.
Which of the following is an IHT anti-avoidance rule focused on restricting debt deductions?
A. GROB
B. POAC
C. DOTAS
D. Restriction on deduction of loans
D. Restriction on deduction of loans.
Explanation: Special rules prevent loans from being used to improperly reduce the taxable estate, especially for BPR assets.
