IHT Nil Rate Bands Flashcards
What is the current basic Nil Rate Band (NRB) for inheritance tax (IHT)?
A) £275,000
B) £325,000
C) £375,000
D) £425,000
B) £325,000
Explanation: The NRB is the amount up to which no IHT is payable, currently set at £325,000. Anything above this threshold may be subject to IHT.
What happens to the NRB if an individual dies leaving all assets to their spouse?
A) The NRB is immediately used
B) The NRB is lost entirely
C) The NRB can be transferred to the surviving spouse
D) The NRB must be used for lifetime gifts
C) The NRB can be transferred to the surviving spouse
Explanation: If a deceased person leaves everything to their spouse/civil partner, their NRB remains unused due to spouse exemption. The unused NRB can be transferred to the surviving spouse (TNRB).
How does the Residence Nil Rate Band (RNRB) differ from the basic NRB?
A) The RNRB applies to all assets
B) The RNRB applies only when a family home is left to direct descendants
C) The RNRB applies to business assets
D) The RNRB replaces the basic NRB
B) The RNRB applies only when a family home is left to direct descendants
Explanation: The RNRB (£175,000) applies in addition to the basic NRB only if the deceased’s home is inherited by direct descendants (children, grandchildren, etc.).
What is the effect of cumulation on NRB?
A) It increases the available NRB
B) It reduces the available NRB by considering past chargeable transfers
C) It has no effect on NRB
D) It only applies to business property
B) It reduces the available NRB by considering past chargeable transfers
Explanation: Cumulation ensures that previous chargeable transfers (e.g., failed PETs, LCTs) in the past 7 years are included when calculating NRB, reducing the amount available.
What is the maximum combined NRB and RNRB a surviving spouse could claim if both spouses’ full allowances are available?
A) £325,000
B) £500,000
C) £650,000
D) £1,000,000
D) £1,000,000
Explanation: The maximum IHT-free allowance available to a surviving spouse who inherits the full NRB and RNRB from their deceased spouse is:
£325,000 NRB (own) + £325,000 TNRB (spouse’s unused NRB)
£175,000 RNRB (own) + £175,000 transferred RNRB (spouse’s unused RNRB)
= £1,000,000 total exemption.
Andrew gifts £100,000 to his son five years before his death. What happens to this transfer if Andrew dies today?
A) It is fully exempt from IHT
B) It is counted as a failed PET and deducted from his NRB
C) It is taxed immediately at 40%
D) It does not count toward IHT as it was given to family
B) It is counted as a failed PET and deducted from his NRB
Explanation: Potentially Exempt Transfers (PETs) are exempt if the donor survives 7 years. Since Andrew died within 7 years, the PET fails and reduces his NRB.
Maria dies in 2024 leaving an estate worth £2.1 million. How does this affect her RNRB?
A) Her estate qualifies for the full RNRB of £175,000
B) Her estate is exempt from IHT
C) She loses her NRB entirely
D) Her RNRB is tapered and reduced
D) Her RNRB is tapered and reduced
Explanation: The RNRB is reduced by £1 for every £2 over £2 million. Since Maria’s estate exceeds £2 million, her RNRB is reduced.
Mark was married twice. His first wife left him all her assets, and his second wife did the same. When Mark dies, how many TNRBs can his estate claim?
A) One, capped at 100% of the NRB
B) Two, giving him a 200% NRB
C) None, since he remarried
D) One, but only for RNRB
A) One, capped at 100% of the NRB
Explanation: Multiple marriages do not allow for unlimited TNRB accumulation. Mark can claim up to 100% of the current NRB from past spouses, even if more than one left assets to him.
Sarah’s estate is worth £3 million. Can her estate claim any RNRB?
A) Yes, the full RNRB of £175,000
B) Yes, but only 50% of the RNRB
C) No, her estate is too large
D) Only if she has children
C) No, her estate is too large
Explanation: The RNRB is fully lost for estates above £2.35 million (or £2.7 million if a full TNRB applies). Since Sarah’s estate exceeds this, no RNRB is available.
John downsized from a large family home to a smaller flat in 2018. When he dies in 2024, can his estate still claim RNRB?
A) Yes, under the downsizing rules if the proceeds benefit direct descendants
B) No, he no longer owns a qualifying residential interest
C) Only if the new property is valued at more than £175,000
D) No, because the RNRB must apply to the original property
A) Yes, under the downsizing rules if the proceeds benefit direct descendants
Explanation: The downsizing rules allow estates to claim RNRB even if the deceased moved to a smaller property or sold their home, provided the proceeds go to direct descendants.
Alex died five years ago, leaving his estate to his spouse, Emily. Emily has now passed away. Can her estate claim Alex’s unused RNRB?
A) No, the RNRB is not transferable
B) No, because Alex did not leave property to direct descendants
C) Yes, but only if Alex’s RNRB was used before
D) Yes, provided Emily’s estate includes a qualifying residential interest left to a direct descendant
D) Yes, provided Emily’s estate includes a qualifying residential interest left to a direct descendant
Explanation: The RNRB is transferable, but only if the second spouse leaves a qualifying residential interest to a direct descendant.
