Intro to IHT Exemptions and Reliefs Flashcards
Which of the following gifts is fully exempt from Inheritance Tax?
A. A gift of £500,000 to a friend
B. A gift of £10,000 to a UK-registered charity
C. A gift of £100,000 to a sibling
D. A gift of £200,000 into a discretionary trust
B – A gift of £10,000 to a UK-registered charity
Explanation: Gifts to charities registered in the UK are fully exempt from IHT under section 23 IHTA 1984.
How much can a parent gift to their child tax-free on their wedding day?
A. £1,000
B. £2,500
C. £5,000
D. £10,000
C – £5,000
Explanation: The marriage exemption allows parents to gift £5,000 tax-free on their child’s wedding day under section 22 IHTA 1984.
What is the annual exemption for gifts?
A. £1,000
B. £3,000
C. £5,000
D. £10,000
B – £3,000
Explanation: The annual exemption allows a person to gift up to £3,000 each year without it being counted for IHT. Any unused allowance can be carried forward for one year only.
Which of the following gifts would not be considered a Potentially Exempt Transfer (PET)?
A. A £50,000 cash gift from a parent to their adult child
B. A £20,000 gift to a nephew
C. A £100,000 gift into a discretionary trust
D. A £15,000 wedding gift from a grandparent to their grandchild
C – A £100,000 gift into a discretionary trust
Explanation: PETs apply only to gifts to individuals. Gifts into trusts are Lifetime Chargeable Transfers (LCTs) and are immediately subject to IHT at 20%.
If a donor makes a PET but dies five years later, what happens to the gift for IHT purposes?
A. It is fully exempt
B. It is taxed at full death rates
C. It benefits from taper relief
D. It is ignored as the donor did not die within three years
C – It benefits from taper relief
Explanation: Taper relief reduces the tax rate on failed PETs if the donor dies between 3 and 7 years after making the gift.
Olivia gifts £20,000 to her granddaughter for university fees. How will this be treated for IHT?
A. It is fully taxable
B. It is fully exempt as a PET
C. It is fully exempt under family maintenance exemption
D. It is partially taxable
C – It is fully exempt under family maintenance exemption
Explanation: The family maintenance exemption covers gifts made for education, maintenance, or training of a child or grandchild.
George transfers his farm worth £500,000 to his son. What relief might apply?
A. Business Property Relief (BPR)
B. Annual Exemption
C. Agricultural Property Relief (APR)
D. Normal Expenditure Out of Income Exemption
C – Agricultural Property Relief (APR)
Explanation: APR provides up to 100% relief on farmland and agricultural property, provided certain conditions are met.
Robert died leaving £50,000 to his wife and £100,000 to his brother. Which of the following applies?
A. Both gifts are taxable
B. The gift to his wife is exempt, but the gift to his brother is taxable
C. The gift to his wife is exempt, and the gift to his brother is partially exempt
D. Both gifts are exempt
B – The gift to his wife is exempt, but the gift to his brother is taxable
Explanation: Spouse exemption applies to gifts between spouses, but gifts to siblings do not qualify for any exemption unless covered by the NRB.
Emily made a PET of £200,000 five years ago and dies today. What happens for IHT purposes?
A. The gift is fully exempt
B. The gift is taxed at full rates
C. The gift benefits from taper relief
D. The gift is ignored because it was made over three years ago
C – The gift benefits from taper relief
Explanation: As Emily survived five years, the gift is taxed but at a reduced rate due to taper relief.
Sophia owns a business valued at £800,000 and passes away, leaving it to her daughter. How much IHT is payable?
A. £0
B. £160,000
C. £320,000
D. £400,000
A – £0
Explanation: The business qualifies for 100% Business Property Relief (BPR), making it fully exempt from IHT.
Liam made the following gifts before his death:
£50,000 to a friend (6 years ago)
£250,000 into a discretionary trust (3 years ago)
£100,000 to his son (2 years ago)
If Liam’s estate is worth £500,000, how much is chargeable to IHT?
A. £600,000
B. £500,000
C. £350,000
D. £250,000
C – £350,000
Explanation:
The gift to a friend (6 years ago) is a failed PET but benefits from taper relief.
The gift into the discretionary trust (3 years ago) is chargeable.
The gift to his son (2 years ago) is a failed PET, fully chargeable.
After applying taper relief, the total chargeable amount is £350,000.
William’s estate is worth £1,200,000. He leaves £500,000 to charity and the rest to his son. What is the IHT liability?
A. £280,000
B. £180,000
C. £120,000
D. £0
B – £180,000
Explanation:
£500,000 is exempt due to charity exemption.
£325,000 is covered by the NRB.
Remaining £375,000 is taxed at 40% = £150,000.
Charity gifts reduce the IHT rate from 40% to 36% if 10% of the estate is donated.
Thus, IHT liability is reduced to £180,000.
