IHT Liability and Burden Flashcards
Who is primarily liable to pay IHT on a Lifetime Chargeable Transfer (LCT) when made?
A. The trustees
B. The personal representatives
C. The donee
D. The residuary beneficiaries
A – The trustees
Explanation:
On a lifetime chargeable transfer, trustees are liable to pay the IHT due at the lifetime rate.
Who is primarily liable to pay IHT on a failed Potentially Exempt Transfer (PET)?
A. The trustees
B. The donee (recipient of the gift)
C. The PRs of the deceased
D. The residuary beneficiaries
B – The donee
Explanation:
If a PET fails (because death occurs within 7 years), the recipient (donee) is responsible for the IHT.
A donor gave £400,000 into a trust and elected to pay the IHT himself. What happens?
A. No IHT is payable
B. Trustees gross up the value
C. The donor gross ups the transfer value and pays higher IHT
D. The gift becomes exempt immediately
C – The donor gross ups the transfer value and pays higher IHT
Explanation:
If the donor elects to pay, the gift is grossed up, and the donor pays more tax.
A testator’s will leaves £5,000 “subject to tax” to a nephew. What does this mean for IHT purposes?
A. The PRs must pay the tax from residue
B. The gift is free of tax
C. The nephew must pay the tax out of the £5,000
D. The residuary beneficiary bears the burden
C – The nephew must pay the tax out of the £5,000
Explanation:
If a gift is made “subject to tax,” the beneficiary receives the gift less any IHT due.
Who pays the IHT due on jointly owned property passing by survivorship?
A. The PRs
B. The trustee of the joint asset
C. The surviving co-owner
D. The residuary beneficiary
C – The surviving co-owner
Explanation:
Joint property passes outside the free estate, and the survivor must pay their share of the IHT.
If a donee fails to pay IHT due on a failed PET within 12 months, who becomes liable?
A. The trustees
B. The residuary beneficiaries
C. The deceased’s personal representatives (PRs)
D. HMRC
C – The deceased’s personal representatives (PRs)
Explanation:
If the donee defaults, the PRs must pay using estate assets.
If a will is silent on IHT burden, who pays the tax on specific gifts?
A. The beneficiary pays
B. The PRs personally
C. It is deducted from the gift
D. It is paid from residue
D – It is paid from residue
Explanation:
If the will is silent, tax on gifts is paid from residue, not deducted from specific gifts.
A testator gives “the residue of my estate free of tax” to his daughter. What is the consequence?
A. The residue pays all tax as usual
B. The daughter receives less because residue must bear other taxes first
C. The PRs become personally liable
D. There is no part of the estate left to pay the tax if residue is all “free of tax”
D – There is no part of the estate left to pay the tax if residue is all “free of tax”
Explanation:
If residue itself is left “free of tax,” it creates a problem because tax must be paid somehow — drafting error!
