Tax Planning in Wills: Exempt Beneficiaries & Qualifying Assets Flashcards
Which of the following beneficiaries is exempt from inheritance tax?
A. Brother
B. Adult child
C. Business Partner
D. Spouse
D. Spouse
Explanation: Gifts to a spouse or civil partner are fully exempt from inheritance tax under the spouse exemption.
What is the inheritance tax rate applied to the taxable estate if a testator leaves 10 percent or more of their net estate to charity?
A. 36 percent
B. 30 percent
C. 40 percent
D. 45 percent
A. 36 percent
Explanation: If 10 percent or more of the estate is left to charity, the remaining taxable estate is taxed at 36 percent instead of 40 percent.
Business Property Relief (BPR) applies if qualifying assets are owned for at least how many years before death?
A. One year
B. Two years
C. Three years
D. Five years
B. Two years
Explanation: Business Property Relief applies if the business property is owned for at least two years before death.
What is the effect of leaving qualifying business assets specifically to a spouse in a will?
A. The business property relief is preserved
B. Both the exemption and relief apply fully
C. The business property relief is wasted
D. The business property relief is carried forward
C. The business property relief is wasted
Explanation: Because the spouse exemption would already eliminate inheritance tax, the business property relief is wasted if the assets are left to a spouse specifically.
A client has £600,000 in their estate including a business worth £200,000 qualifying for BPR. They want to leave £300,000 to their spouse and the rest to their daughter. Which structure is most tax-efficient?
A. Leave the business to the spouse and the cash to the daughter
B. Leave the business to the daughter and the cash to the spouse
C. Leave everything equally to both
D. Leave everything to the daughter
B. Leave the business to the daughter and the cash to the spouse
Explanation: By leaving the business to the daughter, BPR is used effectively to eliminate inheritance tax on that portion, while the cash gift to the spouse is already exempt.
A client leaves a will giving 5 percent of their estate to a charity and the rest to their grandchildren. What inheritance tax rate applies to the taxable estate?
A. 40 percent
B. 36 percent
C. 30 percent
D. 50 percent
A. 40 percent
Explanation: The reduced rate of 36 percent only applies if at least 10 percent of the net estate is left to charity. Here, only 5 percent is left to charity, so the rate remains at 40 percent.
If a testator leaves their farming land specifically to a discretionary trust where their spouse is one of the beneficiaries, what is the tax advantage?
A. Full APR and no tax for the spouse
B. Wasted APR
C. No APR available
D. APR applies but only 50 percent
A. Full APR and no tax for the spouse
Explanation: Agricultural Property Relief can be used efficiently by leaving qualifying property to a discretionary trust instead of directly to the spouse, preserving both the relief and allowing the spouse to benefit indirectly.
A client owns shares that qualify for 100 percent BPR. They include a legacy of £50,000 to charity in their will. Which is the best advice?
A. Sell the shares and donate cash
B. Leave the shares to the executor
C. Leave the shares to the charity
D. Leave the shares to a taxable beneficiary
D. Leave the shares to a taxable beneficiary
Explanation: To use the BPR fully, the qualifying assets should be left to a taxable beneficiary. Gifts to charity are already exempt, so leaving qualifying shares to charity wastes the relief.
A testator owns a family business worth £300,000 and cash worth £200,000. They want to leave everything to their spouse except £50,000 to their nephew. How can they structure the will to maximise tax efficiency?
A. Give the business to the nephew and the cash to the spouse
B. Give cash to the nephew and the business to the spouse
C. Leave everything to the spouse
D. Leave everything to the nephew
A. Give the business to the nephew and the cash to the spouse
Explanation: Giving the business (which qualifies for BPR) to the nephew ensures the business relief is used, while the gift to the spouse benefits from spouse exemption.
If qualifying assets form part of the residue of an estate, what happens to Agricultural Property Relief or Business Property Relief?
A. They apply fully to exempt beneficiaries
B. They are automatically wasted
C. They are apportioned between taxable and exempt beneficiaries
D. They do not apply at all
C. They are apportioned between taxable and exempt beneficiaries
Explanation: When qualifying assets fall into residue, BPR and APR are apportioned, meaning part of the relief may be wasted if exempt beneficiaries receive part of the residue.
A testator leaves a farm valued at £600,000 to their spouse by specific gift and leaves the rest of their estate to their children. What is the tax outcome?
A. Double tax relief applies
B. Tax due on the farm value
C. No tax because of APR
D. No tax because of spouse exemption
D. No tax because of spouse exemption
Explanation: Because the farm is left specifically to a spouse, the spouse exemption applies, and any Agricultural Property Relief is effectively wasted.
Which of the following gifts by will would waste both Agricultural Property Relief and Business Property Relief?
A. Leaving farmland to a niece
B. Leaving business shares to a charity
C. Leaving farmland to a discretionary trust
D. Leaving business shares to a taxable friend
B. Leaving business shares to a charity
Explanation: Charities are already exempt, so leaving business shares to a charity wastes Business Property Relief, because the relief is not needed.
