Lifetime Tax Planning Flashcards
Which of the following is a lawful method of reducing tax liability?
A. Tax avoidance
B. Aggressive tax avoidance
C. Tax evasion
D. Tax omission
A – Tax avoidance
Explanation:
Tax avoidance is the legal and efficient organisation of affairs to minimise tax. Aggressive avoidance and evasion are either disapproved or illegal.
How much is the Annual Exemption (AE) for inheritance tax per year?
A. £1,000
B. £2,500
C. £3,000
D. £5,000
C – £3,000
Explanation:
Every individual can gift £3,000 each tax year free of inheritance tax under the Annual Exemption.
Sarah gifts £250 each to 10 different grandchildren. What exemption applies?
A. Marriage exemption
B. Annual exemption
C. Small gifts exemption
D. No exemption
C – Small gifts exemption
Explanation:
Gifts of up to £250 per person, to unlimited individuals, qualify under the small gifts exemption.
John gifts his daughter £5,000 on her wedding day. What exemption can he claim?
A. £1,000 marriage exemption
B. £2,500 marriage exemption
C. £5,000 marriage exemption
D. £3,000 annual exemption
C – £5,000 marriage exemption
Explanation:
Parents can claim up to £5,000 as a marriage gift exemption to their child.
What is the maximum number of tax years’ Annual Exemption that can be combined for a single gift?
A. 1
B. 2
C. 3
D. Unlimited
B – 2
Explanation:
The current year’s Annual Exemption and the unused exemption from the previous year can be combined, no more.
A transferor makes a PET but dies 4 years later. What relief might apply to reduce the tax due?
A. Business Property Relief
B. Agricultural Property Relief
C. Taper Relief
D. Charity Relief
C – Taper Relief
Explanation:
Taper relief reduces IHT payable where a lifetime transfer becomes taxable because the donor dies within 7 years.
Under the normal expenditure from income exemption, what is essential for the gift to qualify?
A. The gift must reduce the donor’s capital
B. The gift must be regular and not affect the donor’s standard of living
C. The gift must exceed £5,000 annually
D. The gift must be invested in a trust
B – The gift must be regular and not affect the donor’s standard of living
Explanation:
Gifts must be made from surplus income, regularly, and without impacting the donor’s normal lifestyle.
Which of the following would immediately trigger a Lifetime Chargeable Transfer (LCT)?
A. Gift of £2,500 to a grandchild
B. Gift of £20,000 cash to a child
C. Gift of £500,000 into a discretionary trust
D. Gift of £500 cash to a spouse
C – Gift of £500,000 into a discretionary trust
Explanation:
Gifts into discretionary trusts are LCTs and immediately chargeable at 20% if over the nil rate band.
