IHT MCQ Flashcards
A man makes an LCT (‘the LCT’). He has previously made the following transfers:
An LCT (chargeable value £50,000) 9 years before the LCT
A PET (if failed, chargeable value would be £10,000) 8 years before the LCT
A PET (if failed, chargeable value would be £15,000) 6 years before the LCT
An LCT (chargeable value £25,000) 4 years before the LCT
What is the cumulative total that applies when calculating the IHT due at the lifetime rate on the recent LCT?
A. £100,000
B. £75,000
C. £15,000
D. £25,000
E. £40,000
D. £25,000
The £25,000 LCT is included in the cumulative total as it was made within the 7 years prior to the LCT. The other options were wrong because neither PET has yet failed (so are not included within the cumulative total) and the first LCT was made more than 7 years before the recent LCT.
A woman settles £650,000 on trust for her nieces and nephews (an LCT). She has made no previous lifetime transfers.
Calculate the IHT due on the LCT at the time it is made.
A. £130,000
B. £65,000
C. £127,000
D. £64,400
E. £63,800
E. £63,800
The woman has a cumulative total of £0 (Step A) and is able to use her AE from the year of the LCT and the previous year to reduce the value of the LCT to £644,000 (Step C). The NRB is deducted from the chargeable value, leaving £319,000 to be taxed at the lifetime rate of 20% Step D). The other answers were wrong because they missed one or both lots of AE and/or applied IHT at the death rate of 40%.
An unmarried man died recently. The only lifetime transfer he made was an LCT (value £550,000) four and a half years before he died. IHT of £43,800 was paid on the LCT at the time of the transfer.
Calculate the IHT due on the LCT at the date of the man’s death.
A. £43,800
B. £8,760
C. £10,200
D. £52,560
E. £87,600
B. £8,760
The man had a cumulative total of £0 (Step A) and was able to use his AE from the year of the LCT and the previous year to reduce the chargeable value to £544,000 (Step C). The NRB is deducted from the chargeable value, leaving £219,000 to be taxed at the death rate of 40% (Step D). As the LCT was 4 years before death, taper relief is applied at 40% (Step E) and then credit is given for the IHT paid during his lifetime (Step F). The other answers were wrong because they failed to apply one or more of the AE at Step C, taper relief at Step E or credit for the lifetime tax at Step F.
A woman settles £650,000 on trust for her nieces and nephews (an LCT). She has made no previous lifetime transfers.
Calculate the IHT due on the LCT at the time it is made.
A. £63,800
B. £65,000
C. £64,400
D. £127,000
E. £130,000
A. £63,800
The woman has a cumulative total of £0 (Step A) and is able to use her AE from the year of the LCT and the previous year to reduce the value of the LCT to £644,000 (Step C). The NRB is deducted from the chargeable value, leaving £319,000 to be taxed at the lifetime rate of 20% Step D). The other answers were wrong because they missed one or both lots of AE and/or applied IHT at the death rate of 40%.
A woman died six months ago. Her estate now includes the following debts:
i. Legal fees for probate work ii. Income tax bill for period up to death iii. Credit card bill for pre-death spending iv. Funeral bill v. Post-death house clearance invoice
Which of the following correctly lists the debts that can be deducted for inheritance tax purposes?
A. All of them
B. The income tax, credit card bill and funeral bill
C. The funeral bill only
D. The legal fees, income tax, credit card bill and funeral bill
E. None of them
B. The income tax, credit card bill and funeral bill
A solicitor has calculated the inheritance tax due on his client’s estate. The client had never married and left her entire estate to her brother. The estate consisted of personal chattels, cash in a bank account and a house owned as joint tenants with her brother.
The solicitor has reached the wrong figure for the inheritance tax due.
Which of the following has caused the error?
A. When calculating the tax due at step 7 of the IHT calculation, the solicitor only applied the basic NRB and did not consider the availability of the transferrable NRB.
B. When calculating the value of the taxable estate the solicitor deducted funeral expenses.
C. When calculating the cumulative total, the solicitor included three LCTs (made 4, 5 and 6 years ago) but did not include a PET (made 8 years ago).
D. When valuing the taxable death estate, the solicitor did not include the deceased’s share of a house held as joint tenants with her brother because joint tenancy assets pass via survivorship.
E. When calculating the tax due, the solicitor skipped step 6 of the IHT calculation and went straight to step 7.
D. When valuing the taxable death estate, the solicitor did not include the deceased’s share of a house held as joint tenants with her brother because joint tenancy assets pass via survivorship.
Although assets owned as joint tenants pass via survivorship (and therefore do not form part of the succession estate) the deceased’s interest is still part of the taxable death estate. By failing to include the value of the deceased’s share of the house, the solicitor will have reached the wrong figure for the taxable death estate.
Which of the following is the correct order of the 7 step calculation?
A. Step 1 - Identify the taxable estate Step 2 - Calculate the cumulative total Step 3 - Value the taxable estate Step 4 - Deduct debts Step 5 - Apply exemptions and reliefs Step 6 - Apply RNRB Step 7- Apply NRB and calculate tax
B. Step 1 - Calculate the cumulative total Step 2 - Identify the taxable estate Step 3 - Value the taxable estate Step 4 - Deduct debts Step 5 - Apply exemptions and reliefs Step 6 - Apply NRB Step 7- Apply RNRB and calculate tax
C. Step 1 - Calculate the cumulative total, Step 2 - Identify the taxable estate, Step 3 - Value the taxable estate, Step 4 - Deduct debts, Step 5 -Apply exemptions and reliefs, Step 6 - Apply RNRB, Step 7 - Apply NRB and calculate tax
D. Step 1 - Identify the taxable estate Step 2 - Calculate the cumulative total Step 3 - Value the taxable estate Step 4 - Apply the RNRB and NRB Step 5 - Deduct debts Step 6 - Apply exemptions and reliefs Step 7- Calculate tax
E. Step 1 - Calculate the cumulative total Step 2 - Identify the taxable estate Step 3 - Value the taxable estate Step 4 - Apply the RNRB and NRB Step 5 - Deduct debts Step 6 - Apply exemptions and reliefs Step 7- Calculate tax
C. Step 1 - Calculate the cumulative total, Step 2 - Identify the taxable estate, Step 3 - Value the taxable estate, Step 4 - Deduct debts, Step 5 -Apply exemptions and reliefs, Step 6 - Apply RNRB, Step 7 - Apply NRB and calculate tax
t is necessary to start by calculating the cumulative total, then identify and value the taxable estate. Deduct debts from the gross value of the estate to reach the net value, then apply exemptions and reliefs. RNRB should be applied before the basic NRB, then calculate the tax.
A man makes a gift into trust (LCT) worth £15,000. The man has made no other lifetime transfers.
Which one the following exemptions/reliefs applies?
A. Annual exemption of £3,000
B. Annual exemption of £6,000
C. Small gifts
D. Marriage
E. Woodlands relief
B. Annual exemption of £6,000
The man can claim the annual exemption (‘AE’) of £3,000 for the tax year of the gift. As he has made no other lifetime transfers we know he has not used his AE from the previous year, so this may be claimed as well, which gives a total of £6,000.
The other options were incorrect because:
AE of more than £3,000 can be claimed
Small gifts allowance cannot apply to a gift worth more than £250, nor to a gift into a trust
For marriage exemption to apply the gift must be made to a party of the marriage (not a trust)
Woodlands relief is not available in respect of lifetime transfers.
A woman made a gift of £500,000 to her daughter 3.5 years before she died.
Which of the following is correct in relation to the woman’s lifetime gift?
A. The gift is chargeable to IHT following the woman’s death. Taper relief applies and only 20% of the IHT due is now payable.
B. The gift is chargeable to IHT following the woman’s death. Taper relief applies and an 40% reduction in the IHT due can be claimed.
C. The gift is a PET, which means it was not chargeable when it was made. Therefore, there is no IHT liability which can be tapered.
D. The gift is chargeable to IHT following the woman’s death. Taper relief applies and a 20% reduction in the IHT due can be claimed.
E. The gift is a PET which means it is not subject to IHT and therefore taper relief is irrelevant.
D. The gift is chargeable to IHT following the woman’s death. Taper relief applies and a 20% reduction in the IHT due can be claimed.
The woman has made a gift to another person during her lifetime (a PET) and then died within 7 years after making the gift (the PET has failed). The failed PET is chargeable following the woman’s death. As the woman survived more than 3 years after making the gift, taper relief will apply. The rate of taper is a 20% reduction in the IHT due (i.e. 80% of the IHT due is payable).
The other options were incorrect because:
-The PET is chargeable - it failed as the woman died less than 7 years after making the gift
- Taper relief applies as the woman survived more than three years after making the gift
- The rate of taper is 20% and therefore 80% remains payable
A and B are about to get married. Both of B’s parents want to give the couple money as a wedding gift. Assume that neither of B’s parents have any annual exemption available to use.
Which of the following most accurately states the maximum amount that B’s parents can give in consideration of the marriage without any IHT consequences arising?
A. £5,000
B. £20,000
C. £1,000
D. £2,500
E. £10,000
E. £10,000
B’s father and mother can each give £5,000
A man dies leaving the whole of his estate to his son. No inheritance tax is payable following his death.
The man’s estate comprises only his bank accounts (£4,000), a house and its surrounding woodland (combined value of £250,000) and his personal possession (£1,500). The man purchased the house and woodland six years ago. The timber value of the land is £15,000.
Which of one of the following is correct?
A. A claim for woodlands relief can be made (with reference to the value of £15,000).
B. It would be preferable for the man’s estate to make use of BPR instead of woodlands relief.
C. Woodlands relief is not applicable.
D. A claim for woodlands relief would be made when the man’s son sells the land.
E. A claim for woodlands relief can be made (with reference to the value of £250,000).
C. Woodlands relief is not applicable.
Woodlands relief is a deferral of inheritance tax (‘IHT’) that would otherwise be payable. This is estate is not subject to IHT so there is nothing to defer.
A woman dies leaving a will that gives all of her estate to her sister. The woman and her sister were joint tenants of a property. The woman’s estate was taxable.
The woman’s sister dies 1 year later leaving her own estate (which includes assets inherited from the woman) to her children. The sister’s estate was not subject to IHT.
Which of the following is correct with regards quick succession relief (‘QSR’)?
A. QSR would apply to both the woman and the sister’s estate.
B. QSR would apply to the woman’s estate but cannot apply to the value of the property as this passed automatically to the sister by survivorship.
C. QSR does not apply to either estate.
D. QSR would apply to the sister’s estate only.
E. QSR would apply to the woman’s estate only.
C. QSR does not apply to either estate
For QSR to apply both relevant estates must have been taxable –here the sister’s estate was not subject to IHT. The other options were incorrect as QSR does not apply.
A man dies and his estate comprises cash, a partnership interest, and a car (which he inherited from his brother 6 months ago). The man leaves a will that includes cash gifts to his spouse (£10,000) and a local registered charity (£2,000).
Which one of the following exemptions cannot be considered when calculating the IHT liability in respect of the man’s death estate?
A. Spouse exemption
B. Quick succession relief
C. Business property relief
D. Charity exemption
E. Annual exemption
E. Annual exemption
The annual exemption cannot be claimed in respect of a person’s death estate. The other exemptions and reliefs were all potentially relevant:
BPR in respect of the partnership interest
Spouse exemption in respect of the £10,000 gift in his will
Charity exemption in respect of the £2,000 gift in his will
Quick succession relief in respect of the car he inherited from his brother
True or False: IHT exemptions can only be used to reduce the IHT liability on a person’s death estate, or in respect of lifetimes transfers, but not both.
A. False
B. True
A. False
There are exemptions and reliefs that apply to both lifetime transfers and the death estate.
True or False: The basis of most IHT exemptions and reliefs is common law.
A. True
B. False
B. False
Exemptions and reliefs are available by virtue of statutory authority and are set out in the Inheritance Tax Act 1984. Case law relating to exemptions and reliefs usually concerns a dispute over the application of statutory rules.
