IHT (Death Estate) Flashcards
What is the Nil Rate Band (NRB) for Inheritance Tax purposes?
A. £175,000
B. £250,000
C. £325,000
D. £500,000
C. £325,000
Explanation: The Nil Rate Band (NRB) is the threshold below which IHT is not charged. Any part of an estate exceeding this is subject to taxation at 40 percent (unless exemptions or reliefs apply).
How long must a person survive after making a Potentially Exempt Transfer (PET) for it to remain tax-free?
A. 5 years
B. 6 years
C. 7 years
D. 10 years
C. 7 years
Explanation: PETs are initially exempt but become chargeable if the donor dies within 7 years of making the gift.
What is the inheritance tax rate applied to a taxable estate above the Nil Rate Band?
A. 10%
B. 20%
C. 30%
D. 40%
D. 40%
Explanation: The standard IHT rate is 40 percent on the portion of an estate that exceeds the NRB. However, lifetime chargeable transfers (LCTs) are taxed at 20 percent initially if they exceed the NRB during a person’s lifetime.
How does a failed PET affect the available Nil Rate Band at death?
A. It is ignored if made more than 5 years before death
B. It reduces the available NRB by its chargeable value
C. It is automatically taxed at 20 percent
D. It increases the available NRB
B. It reduces the available NRB by its chargeable value
Explanation: A failed PET uses up part of the Nil Rate Band, reducing the tax-free amount available for the remaining estate.
Which of the following is NOT included in the taxable estate?
A. A house owned outright by the deceased
B. A business asset qualifying for 100% Business Property Relief
C. Cash in the deceased’s personal bank account
D. Shares held solely in the deceased’s name
B. A business asset qualifying for 100% Business Property Relief
Explanation: Business Property Relief (BPR) reduces or eliminates IHT liability on qualifying business assets.
Sarah died leaving the following estate:
A house (joint tenants with husband) worth £600,000
A bank account in her sole name with £100,000
A failed PET of £50,000 (made 5 years before death)
How much of Sarah’s estate is subject to IHT?
A. £600,000
B. £650,000
C. £700,000
D. £150,000
D. £150,000
Explanation:
The house passes by survivorship to her husband and is exempt under spouse exemption.
The bank account (£100,000) and the failed PET (£50,000) are taxable.
NRB is reduced by the failed PET, leaving £275,000 of NRB available (325,000 - 50,000).
£150,000 (100,000 + 50,000) is covered by NRB, so no IHT is due
Tom made a PET of £100,000 three years before his death. His total estate at death is £400,000. What is his available Nil Rate Band?
A. £225,000
B. £325,000
C. £400,000
D. £500,000
A. £225,000
Explanation:
The PET uses up part of the Nil Rate Band.
NRB is £325,000 - £100,000 = £225,000 available at death.
John died leaving a taxable estate of £700,000. He had made a failed PET of £75,000 five years before death. How much of his estate is taxable at 40 percent?
A. £375,000
B. £450,000
C. £550,000
D. £625,000
B. £450,000
Explanation:
John’s Nil Rate Band is £325,000 - £75,000 = £250,000.
The remaining taxable estate is £700,000 - £250,000 = £450,000.
This £450,000 is taxed at 40 percent.
Maria left a house worth £300,000 to her daughter and had an estate worth £1.2 million. How much Residence Nil Rate Band (RNRB) can be applied?
A. £125,000
B. £150,000
C. £175,000
D. £200,000
C. £175,000
Explanation:
The full RNRB is £175,000, as the property is left to a direct descendant.
Even though the house is worth more, RNRB is capped at £175,000.
Mark made the following gifts before his death:
6 years ago: £100,000 gift to his son
3 years ago: £250,000 gift to his brother
His estate is worth £800,000. How much is taxable after applying the NRB?
A. £225,000
B. £275,000
C. £425,000
D. £525,000
C. £425,000
Explanation:
The first gift (6 years ago) falls outside the 7-year rule and is ignored.
The second gift (£250,000) is a failed PET, reducing NRB.
NRB available is £325,000 - £250,000 = £75,000.
The taxable estate is £800,000 - £75,000 = £725,000.
The amount above NRB is £425,000, taxed at 40 percent.
