Post-Death Arrangements Flashcards
What is the primary reason a beneficiary might choose to vary their inheritance?
A) To reduce their own CGT liability
B) To redistribute assets to a preferred recipient
C) To avoid paying their own personal income tax
D) To ensure the deceased’s estate qualifies for probate
B) To redistribute assets to a preferred recipient
Explanation: Variations allow a beneficiary to redistribute their inheritance, often for tax efficiency or fairness.
Which of the following is NOT a valid method of post-death estate alteration?
A) Variation
B) Disclaimer
C) Precatory Trust
D) Gifting an asset after the estate is settled
D) Gifting an asset after the estate is settled
Explanation: A post-settlement gift by a beneficiary is treated as their own transaction and does not alter the estate distribution.
Which tax benefit is associated with a valid variation under s.142 IHTA 1984?
A) The original beneficiary avoids making a PET
B) The new beneficiary receives an IHT exemption
C) The deceased’s estate gains a CGT exemption
D) The original beneficiary pays less income tax
A) The original beneficiary avoids making a PET
Explanation: A valid variation under s.142 IHTA ensures the gift is treated as made by the deceased, preventing a PET by the original beneficiary.
Which of the following is true about disclaimers?
A) They must be made before accepting the inheritance
B) They allow the beneficiary to direct the asset to another person
C) They are only valid for intestate estates
D) They automatically reduce IHT payable on the estate
A) They must be made before accepting the inheritance
Explanation: A disclaimer must be made before accepting an inheritance; otherwise, a variation is required.
Amy inherits a painting worth £50,000 from her deceased father’s estate. She does not want to keep it and wishes to gift it to her friend Ben. What would be the best method to ensure no CGT liability arises for Amy?
A) Amy sells the painting and gives Ben the proceeds
B) Amy makes a variation under s.142 IHTA 1984
C) Amy gifts the painting directly to Ben
D) Amy waits five years before making the gift
B) Amy makes a variation under s.142 IHTA 1984
Explanation: A variation ensures the painting is treated as inherited by Ben from the deceased, preventing CGT liability for Amy.
John receives an inheritance of shares from his late father. They were valued at £200,000 at the time of death but are now worth £250,000. He wants to gift them to his sister. Which statement is true?
A) If John gifts the shares, he will have to pay CGT on the £50,000 gain
B) If John makes a variation under s.142 IHTA, he will still owe CGT
C) A variation under s.62 TCGA would mean John’s sister acquires them at the £250,000 value
D) A disclaimer allows John to control who gets the shares
A) If John gifts the shares, he will have to pay CGT on the £50,000 gain
Explanation: If John gifts the shares, it is a CGT disposal based on their increased value, unless he uses a valid variation under s.62 TCGA.
Sarah inherits an estate worth £600,000 from her aunt. The estate qualifies for full spouse exemption, and no IHT is payable. Sarah wants to gift £100,000 to a charity. How does this impact the estate’s IHT liability?
A) No IHT is due, as the estate was already exempt
B) Sarah must pay IHT on the £100,000 if she gifts it
C) If Sarah uses a variation, the estate gains an IHT refund
D) Sarah’s gift will reduce the nil rate band of the estate
C) If Sarah uses a variation, the estate gains an IHT refund
Explanation: A variation redirecting the gift to charity allows the estate to claim the charity exemption and reduce IHT liability.
Mia receives a non-cash inheritance and wants to transfer it to her friend Dave. If the asset has significantly appreciated in value, what is her best course of action to minimize tax liability?
A) Gift the asset to Dave immediately
B) Make a variation under s.142 IHTA but not s.62 TCGA
C) Make a variation under both s.142 IHTA and s.62 TCGA
D) Sell the asset and gift the proceeds to Dave
C) Make a variation under both s.142 IHTA and s.62 TCGA
Explanation: A variation under both provisions ensures the asset is treated as inherited by Dave from the deceased, avoiding CGT and IHT consequences for Mia.
Tom is entitled to inherit a rental property worth £300,000 from his late mother’s estate. He wishes to disclaim the inheritance. What happens next?
A) Tom’s chosen beneficiary will receive the property
B) The property will be redistributed according to the will/intestacy rules
C) Tom must still pay CGT if the property has appreciated
D) Tom can partially disclaim the property to limit tax exposure
B) The property will be redistributed according to the will/intestacy rules
Explanation: A disclaimer results in the inheritance passing under the will or intestacy rules, with no control by Tom.
Which of the following is NOT required for a variation under s.142 IHTA to be valid for IHT purposes?
A) It must be in writing
B) It must be made within two years of death
C) It must be approved by HMRC
D) It must not involve consideration (payment)
C) It must be approved by HMRC
Explanation: HMRC approval is NOT required for a valid variation—it simply needs to meet legal conditions, including being in writing and made within two years.
What is the key difference between a variation and a disclaimer?
A) A variation must be made before accepting the inheritance, while a disclaimer can be made at any time
B) A variation allows the original beneficiary to decide who receives the assets, but a disclaimer does not
C) A disclaimer can be applied to part of an inheritance, but a variation must apply to the whole asset
D) A variation always reduces the IHT liability, whereas a disclaimer does not
B) A variation allows the original beneficiary to decide who receives the assets, but a disclaimer does not
Explanation: A disclaimer simply refuses the inheritance, passing it according to the will or intestacy rules. A variation allows control over who ultimately receives it.
If a variation is made within two years of death and complies with s.142 IHTA 1984, for IHT purposes, who is treated as making the gift?
A) The original beneficiary
B) The deceased
C) The personal representatives
D) HMRC
B) The deceased
Explanation: The writing-back rule under s.142 IHTA means the gift is treated as if the deceased made it, avoiding tax issues for the original beneficiary.
Emily inherits £250,000 from her late mother’s estate and decides to gift £100,000 to her nephew. What is the tax impact if she does this as a straightforward gift instead of a variation?
A) Emily will make a PET, and if she dies within 7 years, IHT may apply
B) The estate will be retrospectively revalued for IHT purposes
C) The gift will be exempt from IHT immediately
D) Emily will have to pay CGT on the £100,000 gift
A) Emily will make a PET, and if she dies within 7 years, IHT may apply
Explanation: A direct gift is a Potentially Exempt Transfer (PET). If Emily dies within 7 years, the gift is added back to her estate for IHT purposes.
David inherits shares worth £80,000 from his late father’s estate. He wants to transfer them to his best friend, James, but they have increased in value to £100,000 since the date of death. How can he avoid a CGT charge on the transfer?
A) Sell the shares and give the proceeds to James
B) Make a variation under s.62 TCGA 1992
C) Wait 7 years before transferring them
D) Make a disclaimer instead
B) Make a variation under s.62 TCGA 1992
Explanation: A variation under s.62 TCGA allows the shares to be treated as inherited directly by James, meaning David avoids a CGT disposal.
Olivia receives an inheritance of £500,000. She varies her inheritance to give £50,000 to a registered UK charity within two years of death. What happens next?
A) The gift is treated as a PET by Olivia
B) The deceased’s estate qualifies for the charity exemption, reducing IHT liability
C) Olivia must pay IHT on the £50,000
D) Olivia’s personal nil rate band is reduced by £50,000
B) The deceased’s estate qualifies for the charity exemption, reducing IHT liability
Explanation: A charitable gift via variation allows the estate to claim charity exemption under s.142 IHTA, reducing overall IHT liability.
