Inheritance Tax (‘IHT’) Flashcards
What is the current Nil Rate Band (NRB) for Inheritance Tax?
A) £275,000
B) £325,000
C) £400,000
D) £500,000
B) £325,000
Explanation: The NRB is the amount of an estate that is not subject to IHT. It is currently £325,000 per person. If the deceased’s estate is worth less than £325,000, no IHT is due (unless PETs or LCTs apply).
How is IHT applied to a failed PET?
A) It is always taxed at 40% at the date of the gift.
B) It is taxed at 20% when made and reassessed at death.
C) It is exempt unless the donor dies within 7 years.
D) It is only taxed if the recipient has no other assets.
C) It is exempt unless the donor dies within 7 years.
Explanation: Potentially Exempt Transfers (PETs) are not taxed when made but become chargeable if the donor dies within 7 years. If the donor survives beyond this, the gift is fully exempt from IHT.
What is the standard rate of IHT on a person’s death estate (above NRB)?
A) 20%
B) 40%
C) 50%
D) 30%
B) 40%
Explanation: When a person dies, their taxable estate (above the NRB) is taxed at 40% unless reliefs or exemptions apply.
Which of the following is NOT an IHT trigger event?
A) A person making a gift to charity
B) A failed PET
C) A lifetime chargeable transfer (LCT)
D) Death
A) A person making a gift to charity
Explanation: Gifts to UK-registered charities are IHT-exempt and do not count towards chargeable transfers. The other three trigger IHT liability under different rules.
Alex gifts £500,000 into a discretionary trust. What immediate IHT charge applies?
A) No charge unless Alex dies within 7 years
B) 40% on the full amount
C) 20% on the excess above the NRB
D) 10% on the full amount
C) 20% on the excess above the NRB
Explanation: LCTs are immediately chargeable. The first £325,000 (NRB) is tax-free, but the remaining £175,000 is taxed at 20%. If Alex dies within 7 years, the gift is reassessed.
Sophie dies leaving an estate of £700,000. Her estate includes her home (worth £200,000), which she leaves to her son. What NRB and RNRB apply?
A) £325,000 NRB + £175,000 RNRB
B) £325,000 NRB only
C) £500,000 NRB + £325,000 RNRB
D) £175,000 RNRB only
A) £325,000 NRB + £175,000 RNRB
Explanation: Sophie’s home is left to a direct descendant, so she qualifies for the Residence Nil Rate Band (RNRB) (£175,000). Her total IHT-free allowance is £500,000 (£325,000 NRB + £175,000 RNRB).
James made a gift of £100,000 to his sister 4 years ago. He dies today. How is this taxed?
A) Fully tax-free due to NRB
B) Taxed at 40% immediately
C) Reduces the NRB available on his death
D) Subject to taper relief
C) Reduces the NRB available on his death
Explanation: The gift is a failed PET as James died within 7 years. This means it reduces the NRB available to offset other IHT liabilities.
Liam gives his nephew £450,000 as a gift and dies 5 years later. What tax applies?
A) No tax because it was a PET
B) 40% tax on the excess over NRB
C) 20% tax on the full amount
D) Taxed based on a sliding scale (taper relief)
D) Taxed based on a sliding scale (taper relief)
Explanation: Since Liam died between 3-7 years after making the gift, taper relief applies. The tax rate reduces depending on the time since the gift was made.
Clara leaves £2 million to her spouse and £200,000 to charity. What IHT applies?
A) 40% on the full estate
B) No IHT due
C) 40% on £200,000
D) 40% on £1.2 million
B) No IHT due
Explanation: Spouse transfers are exempt, and charitable gifts are tax-free. Only the remainder of the estate would be subject to IHT, but in this case, everything is exempt.
A gift into a trust qualifies for Business Property Relief (BPR). What is the IHT liability?
A) 40% on the full value
B) 20% on the chargeable amount
C) Fully exempt from IHT
D) Only taxable if donor dies within 7 years
C) Fully exempt from IHT
Explanation: Business Property Relief (BPR) gives 100% relief on qualifying business assets, meaning no IHT is payable.
