IHT (Lifetime Transfers) Flashcards
What is the IHT rate on a Lifetime Chargeable Transfer (LCT) at the time it is made?
A. 20%
B. 40%
C. 0%
D. 25%
A – 20%
Explanation:
LCTs are immediately chargeable at a lifetime rate of 20%, unless exemptions or reliefs apply.
For a Potentially Exempt Transfer (PET), when does it become chargeable to IHT?
A. Only if the transferor dies within 7 years
B. Immediately upon making the gift
C. Only if the transferor dies after 7 years
D. Only if the transferor survives less than 3 years
A – Only if the transferor dies within 7 years
Explanation:
A PET becomes chargeable only if the donor dies within 7 years after the gift is made.
A man makes a PET of £100,000. He survives 5 years then dies. What happens to the PET?
A. It is ignored because he survived 5 years
B. It becomes fully chargeable
C. It becomes exempt
D. It must be reassessed at the death rate with possible taper relief
D – It must be reassessed at the death rate with possible taper relief
Explanation:
If death occurs between 3–7 years, taper relief reduces the IHT payable on the failed PET.
A PET of £200,000 is made 4 years before death. No previous gifts. What % of tax remains after applying taper relief?
A. 80%
B. 60%
C. 40%
D. 100%
A – 80%
Explanation:
At 4 years after transfer, 80% of the full death rate tax remains payable after taper relief.
A woman makes a £400,000 LCT into trust. No previous gifts were made. What portion is taxed immediately at 20%?
A. £400,000
B. £325,000
C. £75,000
D. £50,000
C – £75,000
Explanation:
£325,000 (NRB) is taxed at 0%. Only the excess £75,000 is taxed at 20%.
Which exemption would most likely apply to a £2,500 cash wedding gift to a grandchild?
A. Marriage exemption
B. Annual exemption
C. Small gifts exemption
D. Business property relief
A – Marriage exemption
Explanation:
Wedding gifts qualify for marriage exemption: up to £2,500 for a grandchild.
After death, how is the nil rate band applied when reassessing a failed PET?
A. Based on NRB at date of original gift
B. Based on NRB at date of death
C. Based on NRB at date of registration with HMRC
D. Based on total estate value
B – Based on NRB at date of death
Explanation:
Failed PETs use the NRB available at the date of death, not the date of the gift.
If tax was paid on an LCT at lifetime rate, and the transferor dies within 7 years, what happens at reassessment?
A. No tax is payable again
B. Full new tax is due without credit
C. Taper relief is applied and credit is given for lifetime tax paid
D. Lifetime tax is refunded and new tax is recalculated
C – Taper relief is applied and credit is given for lifetime tax paid
Explanation:
Taper relief reduces the tax, and any lifetime tax already paid is credited against the reassessed death tax.
