Inheritance tax

Question 1

What does POAT stand for?

Answer 1

Pre-owned assets tax

Question 2

For chattels and intangible assets, what is the income tax for 24/25?

Answer 2

2.25%

Question 3

If the property is land or chattels, how frequently must it be revalued?

Answer 3

Every 5 year

Question 4

What is the date of the IHT introduction?

Answer 4

18 March 1986

Question 5

What are the exclusions from reservation rules?

Answer 5

• transfers between spouses or civil partners
• small gifts
• gifts in consideration of marriage or civil partnership
• gifts to charity
• gifts to political parties
• gifts for the national benefits

Question 6

Which of the following disposals is excluded from POAT charges on land and chattels?
A) Sale to a connected person at below-market value
B) Transfer to a spouse or civil partner
C) Sale with consideration left outstanding as a debt
D) Transfer to an unconnected person for no consideration

Answer 6

B) Transfer to a spouse or civil partner

Question 7

If a person sells an asset at arm’s length for cash, will it be subject to POAT?
A) Yes, always
B) No, but only if sold to an unconnected person
C) No, as long as the price is at market value, even if sold to a connected person
D) Yes, if the buyer is a family member

Answer 7

C) No, as long as the price is at market value, even if sold to a connected person

Question 8

Which of the following is NOT an exemption from POAT?
A) Assets disposed of before 18 March 1986
B) Assets included in the estate under the “gifts with reservation” rules
C) Assets held in a discretionary trust where the settlor is a beneficiary
D) Assets that the former owner inherited via a will and were later varied by agreement

Answer 8

C) Assets held in a discretionary trust where the settlor is a beneficiary

Question 9

What happens if a person gifts 50% of their home to someone who shares the running costs and lives with them?
A) They will be subject to POAT
B) No POAT charge applies
C) Only half of the house is taxable under POAT
D) POAT applies only if the cohabitant is a family member

Answer 9

B) No POAT charge applies

Question 10

Under what circumstances does POAT apply to a life assurance policy held in trust?
A) When the taxpayer’s claims are limited to retained benefits (e.g., return of premiums)
B) When the policy is held on trust solely for others
C) When the whole value of the policy is held in a discretionary trust, and the settlor is a potential beneficiary
D) When the trust is used for business continuity

Answer 10

C) When the whole value of the policy is held in a discretionary trust, and the settlor is a potential beneficiary

Question 11

Are all commercial equity release schemes subject to POAT?
A) Yes, if the owner retains part of the property
B) No, they are all exempt
C) Only if the owner releases more than 50% of the equity
D) Only if the scheme involves a connected person

Answer 11

B) No, they are all exempt

Question 12

Under POAT rules, when is no tax chargeable on a benefit?
A) When the benefit is received by a spouse or civil partner
B) When the benefit is less than £10,000
C) When the value of the benefit does not exceed £5,000
D) When the asset was disposed of before 18 March 1986

Answer 12

C) When the value of the benefit does not exceed £5,000

Question 13

What is one way to avoid POAT charges?
A) Transferring the asset to a friend
B) Electing for the asset to be subject to IHT on death
C) Selling the asset at a discounted price
D) Gifting the asset to a minor

Answer 13

B) Electing for the asset to be subject to IHT on death

Question 14

Which form must be completed to elect for an asset to be subject to IHT on death instead of POAT?
A) IHT100
B) IHT205
C) IHT500
D) POAT200

Answer 14

C) IHT500

Question 15

By when should the POAT election normally be made if income tax first arises in 2024/25?
A) 5 April 2025
B) 31 October 2025
C) 31 January 2026
D) 5 April 2026

Answer 15

C) 31 January 2026

Question 16

What is one potential issue with undoing arrangements caught by POAT?
A) It is only possible for land transactions
B) It may not be possible if the asset is intangible property
C) It may not be possible if the trust beneficiaries include minors
D) It requires court approval in all cases

Answer 16

C) It may not be possible if the trust beneficiaries include minors

Question 17

What discretion does HMRC have regarding POAT elections?
A) HMRC may refuse all late elections
B) HMRC can accept late elections without restriction
C) HMRC requires a tribunal ruling to accept late elections
D) HMRC only allows elections if the estate is worth over £500,000

Answer 17

B) HMRC can accept late elections without restriction

Question 18

Why do special regulations exist concerning IHT and POAT elections?
A) To allow individuals to reclaim past tax payments
B) To prevent double taxation of the same asset under IHT
C) To ensure minors are protected from excessive taxation
D) To limit the amount of IHT payable on large estates

Answer 18

B) To prevent double taxation of the same asset under IHT

Question 19

What happens if an individual dies within seven years of making a PET (Potentially Exempt Transfer) and also elected for IHT treatment on an asset under POAT?
A) The asset is taxed twice under IHT
B) POAT still applies despite the election
C) Special rules prevent a double IHT charge
D) The election is automatically revoked

Answer 19

C) Special rules prevent a double IHT charge

Question 20

What should individuals consider before opting out of POAT?
A) The potential IHT savings versus the POAT income tax charge
B) Whether they have other taxable assets
C) If their property is located in the UK
D) Whether the asset is a business asset

Answer 20

A) The potential IHT savings versus the POAT income tax charge

Question 21

If shares in a deceased’s estate are sold within one year of death at a lower value than the date of death valuation, what happens?
A) No change in IHT valuation
B) The IHT valuation is adjusted to the actual sale value
C) The estate can claim CGT relief instead of IHT relief
D) HMRC applies the higher of the two values for tax purposes

Answer 21

B) The IHT valuation is adjusted to the actual sale value

Question 22

When does a sale of land after death qualify for IHT relief due to a reduced sale price?
A) If the sale occurs within one year of death
B) If the sale is to a connected person
C) If the loss exceeds the lower of £1,000 or 5% of the death value
D) If the land is held in a trust

Answer 22

C) If the loss exceeds the lower of £1,000 or 5% of the death value

Question 23

What is the “related property” rule in IHT valuation?
A) Property owned by individuals in the same family is valued separately
B) Property in which the donor or their spouse/civil partner has an interest is considered together for valuation
C) It applies only to land transfers between family members
D) Related property is always valued at a discount

Answer 23

B) Property in which the donor or their spouse/civil partner has an interest is considered together for valuation

Question 24

How does the “related property” rule affect IHT valuation in the case of share transfers?
A) It values transferred shares as part of the total related shareholding, potentially increasing the value
B) It allows the donor to apply a minority discount
C) It reduces the IHT valuation if the shares are split between multiple beneficiaries
D) It applies only to listed company shares

Answer 24

A) It values transferred shares as part of the total related shareholding, potentially increasing the value

Question 25

What happens if a wife owns 45% of a private company’s shares and transfers them to her son, while her husband owns another 45%? A) The transfer is valued as 45% of the company’s worth B) The transfer is valued as 50% of a 90% controlling shareholding C) The transfer is subject to a minority discount D) The IHT valuation is based on the nominal share price

Answer 25

B) The transfer is valued as 50% of a 90% controlling shareholding

Question 26

How does HMRC approach valuations of transfers between connected persons? A) HMRC automatically applies a discount to reduce valuation disputes B) HMRC does not investigate commercial transactions between connected persons C) HMRC scrutinizes transactions to ensure no element of gift is involved D) Connected persons can self-certify their valuations without HMRC review

Answer 26

C) HMRC scrutinizes transactions to ensure no element of gift is involved

Question 27

What happens to the death sum assured of a life policy if the life assured dies and the policy was not assigned or held in trust? A) It is paid directly to the beneficiary without being part of the estate B) It is included in the estate and is potentially taxable under IHT C) It is automatically exempt from IHT D) It is subject to CGT rather than IHT

Answer 27

B) It is included in the estate and is potentially taxable under IHT

Question 28

How is the value of a life policy assessed for IHT purposes if it is transferred during the lifetime of the policyholder? A) It is valued based on the death sum assured B) It is valued based on the surrender value, unless the insured is in very poor health C) It is always valued at the original purchase price D) It is exempt from IHT if transferred before death

Answer 28

B) It is valued based on the surrender value, unless the insured is in very poor health

Question 29

What does the special valuation rule for life policies state? A) The value is never less than the total premiums paid, minus any payouts B) The value is always the surrender value C) The value is always the death sum assured D) The valuation is based on market demand for similar policies

Answer 29

A) The value is never less than the total premiums paid, minus any payouts

Question 30

When does the special premium valuation rule not apply to a life policy? A) If the policy term is 3 years or less B) If the premiums are payable for at least two-thirds of the term and are relatively stable C) If the surrender value is higher than the total premiums paid D) All of the above

Answer 30

D) All of the above

Question 31

How are unit-linked life policies valued for IHT purposes? A) Only the surrender value is considered B) The special premium valuation rule applies in full C) Any drop in unit value since allocation is deducted from the total premiums D) They are always exempt from IHT

Answer 31

C) Any drop in unit value since allocation is deducted from the total premiums

Question 32

What is considered a transfer of value for IHT purposes in relation to life policies? A) Paying premiums on a life policy for someone else's benefit B) Assigning a life policy into trust C) Surrendering a policy for cash value D) All of the above

Answer 32

A) Paying premiums on a life policy for someone else's benefit

Question 33

Why do Chargeable Lifetime Transfers (CLTs) require grossing up? A) To ensure the tax paid by the transferor is included in the value of the gift B) Because the recipient must pay additional tax on the transfer C) To reflect inflation adjustments in asset values D) To adjust for changes in tax rates over time

Answer 33

A) To ensure the tax paid by the transferor is included in the value of the gift

Question 34

How is the tax liability calculated when a transferor pays the IHT on a gift? A) IHT is deducted from the gift value to determine the net value B) The tax is based on the total of the gift plus the tax paid C) The recipient is liable for the IHT, so grossing up does not apply D) The tax is calculated only on the original asset value, ignoring any tax paid by the transferor

Answer 34

B) The tax is based on the total of the gift plus the tax paid

Question 35

Maryam makes a lifetime gift of £400,000, and the Nil Rate Band (NRB) is £325,000. She chooses to pay the Inheritance Tax (IHT) herself, and the tax rate is 20%. How much tax does she need to pay, and what is the total gross gift amount? A) £15,000 tax; £400,000 gross gift B) £18,750 tax; £93,750 grossed-up amount for the excess C) £20,000 tax; £100,000 grossed-up amount for the excess D) £25,000 tax; £125,000 grossed-up amount for the excess

Answer 35

B

Question 36

Who is primarily liable for paying inheritance tax (IHT) on a chargeable lifetime transfer (CLT)? a) The transferee b) The transferor c) HMRC d) The personal representatives

Answer 36

B) The transferor

Question 37

When is IHT usually due for a lifetime transfer? a) At the end of the calendar year in which the transfer was made b) Six months after the end of the month of the transfer c) Immediately upon transfer d) One year after the transfer

Answer 37

b) Six months after the end of the month of the transfer

Question 38

If a transfer is made between 6 April and 30 September, when is IHT due? a) 31 December of the same year b) 30 April of the following year c) Immediately d) Six months after the transfer

Answer 38

b) 30 April of the following year

Question 39

If a transferor dies within seven years of making a potentially exempt transfer (PET), who is responsible for paying any additional IHT? a) The personal representatives b) The transferee c) HMRC d) The original transferor

Answer 39

b) The transferee

Question 40

What happens when a person makes a CLT and IHT is payable? a) The transferee must report it to HMRC b) The transferor must report it to HMRC c) HMRC automatically assesses the tax d) No reporting is required if the transfer is below the nil-rate band

Answer 40

b) The transferor must report it to HMRC

Question 41

Who is responsible for paying inheritance tax (IHT) on the estate of a deceased person? a) The transferee b) The executor of the will c) The legal personal representatives (LPRs) d) The beneficiaries

Answer 41

c) The legal personal representatives (LPRs)

Question 42

When is IHT due on the estate of a deceased person? a) Three months after death b) Six months after the end of the month in which death occurs c) Immediately upon death d) One year after death

Answer 42

b) Six months after the end of the month in which death occurs

Question 43

What must LPRs do before they can obtain a grant of representation? a) Notify all beneficiaries b) Deliver an account of the deceased’s assets and pay the tax c) Sell the deceased’s property d) Transfer funds to the beneficiaries

Answer 43

b) Deliver an account of the deceased’s assets and pay the tax

Question 44

What is a common reason for IHT being paid before the due date? a) To reduce tax liability b) Because LPRs cannot administer the estate until tax is paid c) To avoid penalties from HMRC d) To expedite property transfers

Answer 44

b) Because LPRs cannot administer the estate until tax is paid

Question 45

If the deceased’s bank does not allow electronic transfer of IHT, what might LPRs need to do? a) Sell part of the estate immediately b) Take a loan to pay the tax c) Wait until probate is granted d) Transfer the tax burden to beneficiaries

Answer 45

b) Take a loan to pay the tax

Question 46

How can tax be paid on certain properties, such as land? a) In full before probate b) In annual instalments c) Through a deduction from the estate’s value d) By transferring ownership to HMRC

Answer 46

b) In annual instalments

Question 47

If an estate is divided between an exempt beneficiary (e.g., a charity) and a non-exempt beneficiary (e.g., a child), how is IHT calculated? a) The exempt beneficiary pays a reduced share of tax b) The non-exempt beneficiary bears the entire tax burden c) The tax is split equally between both beneficiaries d) The tax is reduced for both beneficiaries

Answer 47

b) The non-exempt beneficiary bears the entire tax burden

Question 48

Joe dies leaving an estate of £1m, half to his daughter Freda, and half to his favourite charity. The estate does not include a residence. 1. Why is the charity’s portion of Joe’s estate not subject to inheritance tax (IHT)? a) Because it is below the nil-rate band b) Because charities are exempt from IHT c) Because Freda agreed to cover the tax d) Because Joe’s estate does not include a residence 2. How much of Freda’s inheritance is taxable? a) £500,000 b) £325,000 c) £175,000 d) £63,000 3. What is the inheritance tax (IHT) rate applied to the taxable portion of Freda’s inheritance? a) 40% b) 36% c) 20% d) 10% 4. How much IHT does Freda have to pay? a) £175,000 b) £63,000 c) £40,000 d) £0 5. How much does Freda receive after tax? a) £500,000 b) £437,000 c) £325,000 d) £175,000 6. Why is Freda’s taxable portion of the estate subject to a reduced 36% tax rate instead of 40%? a) Because the estate is below £2 million b) Because 10% or more of the estate was left to charity c) Because the estate does not include a residence d) Because Freda is a direct descendant 7. What is the total inheritance tax paid on Joe’s estate? a) £0 b) £63,000 c) £100,000 d) £175,000 8. If Joe had left only 5% of his estate to charity instead of 50%, what IHT rate would have applied to Freda’s taxable portion? a) 36% b) 40% c) 20% d) 10% 9. What is the significance of the "10% charitable legacy limit"? a) It exempts the entire estate from IHT b) It reduces the IHT rate from 40% to 36% c) It allows tax-free gifts to family members d) It increases the nil-rate band

Answer 48

Work it out

Question 49

How long after death is inheritance tax (IHT) on the death estate due? a) Six months after the date of death b) Six months after the end of the month in which death occurs c) One year after death d) Three months after death

Answer 49

b) Six months after the end of the month in which death occurs

Question 50

How do IHT due dates differ from self-assessment tax due dates? a) IHT is due at the same time as self-assessment tax b) IHT is due six months after the end of the month of death, while self-assessment follows a fixed calendar deadline c) Self-assessment tax is due six months after death, while IHT follows a fixed calendar deadline d) There is no difference in due dates

Answer 50

b) IHT is due six months after the end of the month of death, while self-assessment follows a fixed calendar deadline

Question 51

If a person dies on 10 March, when is the IHT on their death estate due? a) 10 September of the same year b) 30 September of the same year c) 30 September of the following year d) 10 October of the same year

Answer 51

b) 30 September of the same year

Question 52

What happens if additional IHT liabilities arise due to death? a) They are due immediately b) They are due within three months c) They follow the same six-month rule as the death estate IHT d) They must be settled within one year

Answer 52

c) They follow the same six-month rule as the death estate IHT

Question 53

What provision exists for paying inheritance tax in instalments? a) It applies only if the deceased was over 80 years old b) It is allowed for certain types of property, such as land and business assets c) It is an option for all estates above the nil-rate band d) Instalments are only available if the beneficiaries are unable to pay the tax upfront

Answer 53

b) It is allowed for certain types of property, such as land and business assets

Question 54

Why is it important to understand the IHT due date? a) To ensure probate is granted without delays b) To avoid interest and penalties from HMRC c) To allow beneficiaries to plan for any potential tax liabilities d) All of the above

Answer 54

d) All of the above

Question 55

How can inheritance tax be paid if there are difficulties accessing funds from the deceased’s estate? a) By taking a loan b) By selling part of the estate’s assets c) By arranging for payment in instalments on certain assets like land d) All of the above

Answer 55

d) All of the above

Question 56

What must be done before inheritance tax can be paid from the deceased’s bank account? a) The beneficiaries must provide written consent b) The legal personal representatives must obtain probate or letters of administration c) HMRC must approve the estate’s valuation d) The will must be formally read

Answer 56

b) The legal personal representatives must obtain probate or letters of administration

Question 57

In what situation might additional IHT liabilities arise due to death? a) If the deceased made a potentially exempt transfer (PET) within seven years of death b) If the deceased left everything to a charity c) If the deceased had no taxable assets d) If the estate is below the nil-rate band

Answer 57

a) If the deceased made a potentially exempt transfer (PET) within seven years of death

Question 58

What could happen if IHT is not paid by the due date? a) The estate cannot be distributed to beneficiaries b) Interest and penalties may be applied c) The legal personal representatives may be held liable for non-payment d) All of the above

Answer 58

d) All of the above

Question 59

Why is IHT on the death estate not due exactly six months after the date of death? a) To align with tax year reporting b) To give legal personal representatives more time to calculate tax liabilities c) To ensure consistency in tax deadlines across estates d) Because tax law specifies payment deadlines based on the end of the month of death

Answer 59

d) Because tax law specifies payment deadlines based on the end of the month of death

Question 60

What happens when a trust is created in terms of inheritance tax (IHT)? a) It is automatically exempt from IHT b) It is considered a transfer of value for IHT purposes c) It reduces the settlor’s nil-rate band d) It is only taxable upon the settlor’s death

Answer 60

b) It is considered a transfer of value for IHT purposes

Question 61

How is the value of a transfer into a trust calculated for IHT purposes? a) Based on the total value of the trust assets b) Based on the market value of the trust c) Based on the loss in value to the settlor’s estate d) Based on the income generated by the trust

Answer 61

c) Based on the loss in value to the settlor’s estate

Question 62

What factors determine whether IHT is payable when a trust is created? a) The financial situation of the beneficiaries b) The total income generated by the trust c) Whether the settlor’s nil-rate band has been exceeded and the type of trust used d) The number of trustees managing the trust

Answer 62

c) Whether the settlor’s nil-rate band has been exceeded and the type of trust used

Question 63

Which of the following is not an exemption that can prevent an IHT charge when creating a trust? a) A gift into trust within the £3,000 annual exemption b) A gift to a charitable trust c) A transfer into a discretionary trust exceeding the nil-rate band d) A transfer that qualifies for business or agricultural relief

Answer 63

c) A transfer into a discretionary trust exceeding the nil-rate band

Question 64

What type of trust is treated as a potentially exempt transfer (PET) for IHT purposes? a) A discretionary trust b) An absolute (bare) trust c) A relevant property trust d) A charitable trust

Answer 64

b) An absolute (bare) trust

Question 65

If a transfer into a trust is neither fully nor potentially exempt, what happens? a) No IHT is payable b) The transferor must pay IHT immediately c) There could be an IHT charge d) The tax is automatically deferred until the settlor’s death

Answer 65

c) There could be an IHT charge

Question 66

What impact did the Finance Act 2006 have on the taxation of trusts? a) It introduced the nil-rate band for trusts b) It made all trusts tax-exempt c) It introduced the relevant property trust rules for most lifetime trusts created after 22 March 2006 d) It eliminated IHT on all lifetime gifts into trust

Answer 66

c) It introduced the relevant property trust rules for most lifetime trusts created after 22 March 2006

Question 67

What is a relevant property trust? a) A trust that holds property exclusively b) A trust subject to special IHT rules introduced by the Finance Act 2006 c) A trust that does not pay IHT on transfers into it d) A trust that only benefits business owners

Answer 67

b) A trust subject to special IHT rules introduced by the Finance Act 2006

Question 68

If a settlor has made chargeable lifetime transfers (CLTs) in the previous seven years, how does this affect the IHT liability of a new trust transfer? a) It reduces the available nil-rate band for the new transfer b) It increases the value of the new transfer c) It automatically exempts the new transfer from IHT d) It has no effect on the new transfer’s IHT liability

Answer 68

a) It reduces the available nil-rate band for the new transfer

Question 69

If a person transfers assets into a trust that qualifies for business relief or agricultural relief, what happens? a) The transfer is immediately subject to IHT b) The transfer may be exempt from IHT c) The transfer is taxed at a reduced rate of 20% d) The transferor must pay IHT over ten years

Answer 69

b) The transfer may be exempt from IHT

Question 70

What is the inheritance tax (IHT) treatment of a transfer to a bare trust? a) It is immediately chargeable to IHT b) It is treated as a potentially exempt transfer (PET) c) It is exempt from IHT regardless of the settlor’s survival d) It is taxed under the relevant property trust rules

Answer 70

b) It is treated as a potentially exempt transfer (PET)

Question 71

Who is liable for any IHT if a PET into a bare trust fails due to the settlor’s death within seven years? a) The settlor’s estate b) The trustees c) The beneficiary of the bare trust d) HMRC waives the tax liability

Answer 71

c) The beneficiary of the bare trust

Question 72

Under what condition will a PET into a bare trust NOT be chargeable to IHT? a) If the settlor survives at least three years b) If the settlor survives at least five years c) If the settlor survives at least seven years d) If the beneficiary is a close family member

Answer 72

c) If the settlor survives at least seven years

Question 73

What happens if the settlor of a bare trust dies within seven years of making a PET? a) The PET automatically becomes chargeable to IHT b) The PET remains exempt from IHT c) The PET is taxed at a lower rate of 10% d) The PET is only taxed if the trust fund exceeds £1 million

Answer 73

a) The PET automatically becomes chargeable to IHT

Question 74

How can the IHT liability on a failed PET into a bare trust be reduced? a) By transferring the trust assets to another trust b) By applying taper relief if the settlor survived at least three years c) By requesting an exemption from HMRC d) By distributing the trust assets to multiple beneficiaries

Answer 74

b) By applying taper relief if the settlor survived at least three years

Question 75

If a settlor dies four years after making a PET into a bare trust, what impact does taper relief have? a) It fully eliminates any IHT liability b) It reduces the IHT charge by a percentage c) It only applies if the PET was made to a discretionary trust d) It delays the tax payment until the trust is dissolved

Answer 75

b) It reduces the IHT charge by a percentage

Question 76

Where is the bare trust fund included for IHT purposes? a) In the settlor’s estate b) In the beneficiary’s IHT estate c) In a separate trust tax account d) It is not included in any estate for IHT

Answer 76

b) In the beneficiary’s IHT estate

Question 77

If the settlor of a bare trust survives five years after making a PET, what percentage of taper relief applies to any IHT liability? a) 0% b) 20% c) 40% d) 60%

Answer 77

b) 20%

Question 78

What is a key difference between a bare trust and a relevant property trust for IHT purposes? a) Bare trusts are always subject to immediate IHT charges b) Bare trusts are PETs, whereas relevant property trusts may have ongoing IHT charges c) Relevant property trusts are only for minors d) Bare trusts require a minimum transfer value of £100,000

Answer 78

b) Bare trusts are PETs, whereas relevant property trusts may have ongoing IHT charges

Question 79

If a settlor transfers £500,000 into a bare trust and dies within three years, what happens to the IHT liability? a) The full amount is taxed at 40% IHT b) The transfer is exempt from IHT due to the PET rule c) The beneficiary must pay IHT on any amount exceeding the nil-rate band d) The trust itself must pay the IHT charge

Answer 79

c) The beneficiary must pay IHT on any amount exceeding the nil-rate band