W6 Flashcards
A woman makes a PET with a chargeable value of £50,000. She does the same 11 years later. A year after the second gift, she dies. She makes no other lifetime gifts. What is the cumulative total on her death?
A. £175,000
B. £100,000
C. £50,000
D. £325,000
E. £0
C. £50,000
The woman has made one PET of £50,000 in the last seven years.
A man gifts £500,000 into trust. If the man lives for another ten years, which one of the following is correct in relation to the inheritance tax treatment of the gift?
A. Tax will be payable on the man’s death at the death rate of 40%
B. No tax will be payable at the time of the transfer
C. Tax will initially be payable at the lifetime rate of 20% then reassessed at the death rate of 40%
D. Tax will be payable at the lifetime rate of 20%
E. Tax will be payable at the time of transfer at the death rate of 40%
D. Tax will be payable at the lifetime rate of 20%
The gift is an LCT. The man survives more than seven years after the LCT so it is not reassessed at the death rate.
Which one of the following scenarios does not include a chargeable event for inheritance tax purposes?
A. A PET which is made 3 years before death
B. A PET which is made 9 years before death
C. The death of an individual who has made no lifetime gifts
D. An LCT which is made 15 years before death
E. An LCT and a PET made together
D. An LCT which is made 15 years before death
A PET made more than 7 years before death is not chargeable.
A man makes three gifts in his lifetime, each with a chargeable value of £10,000. The first gift is made 15 years before his death, the second is five years before his death and the final one is gifted in the week of his death. What is the basic Nil Rate Band available to his death estate? (There is no TNRB available.)
A. £295,000
B. £20,000
C. £325,000
D. £305,000
E. £30,000
D. £305,000
Two of the gifts were made in the seven years before the man’s death so are included in the cumulative total.
What is the maximum combined value of the nil rate bands available to the estate of a surviving spouse?
A. £825,000
B. £650,000
C. It depends how many times the deceased was married as they can receive TNRB from each former spouse
D. £1,000,000
E. £500,000
D. £1,000,000
A surviving spouse can make use of their own basic NRB (£325,000) and RNRB (£175,000) and receive a transfer of up to 100% of the basic NRB and RNRB from the estate of their deceased spouse.
A woman died two years ago and left her entire estate worth £400,000 to her husband. She made no lifetime gifts. Her husband died recently. He left his entire estate to his children. His estate was valued at £900,000 including a family home worth £500,000. He made three PETS in his lifetime totalling £500,000. All three were made over 20 years ago.
A. Which one of the following is correct in terms of available Nil Rate Bands?
B. His estate can claim a basic NRB and his wife’s basic NRB only
C. His estate can claim a basic NRB only
D. His estate can claim a basic NRB, his wife’s basic NRB, his RNRB and his wife’s RNRB
E. His estate will have no NRB available to it
D. His estate can claim a basic NRB, his wife’s basic NRB, his RNRB and his wife’s RNRB
The man and his wife both died with full basic NRB available (his PETs were made more than 7 years ago so the man’s cumulative total when he died was zero). The wife also did not use her RNRB so this is also available to transfer.
A woman settles £650,000 on trust for her nieces and nephews (an LCT). She has made no previous lifetime transfers.
Calculate the IHT due on the LCT at the time it is made.
A. £127,000
B. £64,400
C. £130,000
D. £63,800
E. £65,000
D. £63,800
The woman has a cumulative total of £0 (Step A) and is able to use her AE from the year of the LCT and the previous year to reduce the value of the LCT to £644,000 (Step C). The NRB is deducted from the chargeable value, leaving £319,000 to be taxed at the lifetime rate of 20% Step D). The other answers were wrong because they missed one or both lots of AE and/or applied IHT at the death rate of 40%.
An unmarried man died recently. The only lifetime transfer he made was an LCT (value £550,000) four and a half years before he died. IHT of £43,800 was paid on the LCT at the time of the transfer.
Calculate the IHT due on the LCT at the date of the man’s death.
A. £52,560
B. £87,600
C. £43,800
D. £10,200
E. £8,760
E. £8,760
The man had a cumulative total of £0 (Step A) and was able to use his AE from the year of the LCT and the previous year to reduce the chargeable value to £544,000 (Step C). The NRB is deducted from the chargeable value, leaving £219,000 to be taxed at the death rate of 40% (Step D). As the LCT was 4 years before death, taper relief is applied at 40% (Step E) and then credit is given for the IHT paid during his lifetime (Step F). The other answers were wrong because they failed to apply one or more of the AE at Step C, taper relief at Step E or credit for the lifetime tax at Step F.
A man makes an LCT (‘the LCT’). He has previously made the following transfers:
An LCT (chargeable value £50,000) 9 years before the LCT
A PET (if failed, chargeable value would be £10,000) 8 years before the LCT
A PET (if failed, chargeable value would be £15,000) 6 years before the LCT
An LCT (chargeable value £25,000) 4 years before the LCT
What is the cumulative total that applies when calculating the IHT due at the lifetime rate on the recent LCT?
A. £40,000
B. £15,000
C. £75,000
D. £100,000
E. £25,000
E. £25,000
The £25,000 LCT is included in the cumulative total as it was made within the 7 years prior to the LCT. The other options were wrong because neither PET has yet failed (so are not included within the cumulative total) and the first LCT was made more than 7 years before the recent LCT.
A solicitor has calculated the inheritance tax due on his client’s estate. The client had never married and left her entire estate to her brother. The estate consisted of personal chattels, cash in a bank account and a house owned as joint tenants with her brother.
The solicitor has reached the wrong figure for the inheritance tax due.
Which of the following has caused the error?
A. When calculating the cumulative total, the solicitor included three LCTs (made 4, 5 and 6 years ago) but did not include a PET (made 8 years ago).
B. When calculating the tax due at step 7 of the IHT calculation, the solicitor only applied the basic NRB and did not consider the availability of the transferrable NRB.
C. When calculating the value of the taxable estate the solicitor deducted funeral expenses.
D. When calculating the tax due, the solicitor skipped step 6 of the IHT calculation and went straight to step 7.
E. When valuing the taxable death estate, the solicitor did not include the deceased’s share of a house held as joint tenants with her brother because joint tenancy assets pass via survivorship.
E. When valuing the taxable death estate, the solicitor did not include the deceased’s share of a house held as joint tenants with her brother because joint tenancy assets pass via survivorship.
Although assets owned as joint tenants pass via survivorship (and therefore do not form part of the succession estate) the deceased’s interest is still part of the taxable death estate. By failing to include the value of the deceased’s share of the house, the solicitor will have reached the wrong figure for the taxable death estate.
Which of the following is the correct order of the 7 step calculation?
A. Step 1 - Identify the taxable estate Step 2 - Calculate the cumulative total Step 3 - Value the taxable estate Step 4 - Deduct debts Step 5 - Apply exemptions and reliefs Step 6 - Apply RNRB Step 7- Apply NRB and calculate tax
B. Step 1 - Calculate the cumulative total Step 2 - Identify the taxable estate Step 3 - Value the taxable estate Step 4 - Apply the RNRB and NRB Step 5 - Deduct debts Step 6 - Apply exemptions and reliefs Step 7- Calculate tax
C. Step 1 - Calculate the cumulative total, Step 2 - Identify the taxable estate, Step 3 - Value the taxable estate, Step 4 - Deduct debts, Step 5 -Apply exemptions and reliefs, Step 6 - Apply RNRB, Step 7 - Apply NRB and calculate tax
D. Step 1 - Calculate the cumulative total Step 2 - Identify the taxable estate Step 3 - Value the taxable estate Step 4 - Deduct debts Step 5 - Apply exemptions and reliefs Step 6 - Apply NRB Step 7- Apply RNRB and calculate tax
E. Step 1 - Identify the taxable estate Step 2 - Calculate the cumulative total Step 3 - Value the taxable estate Step 4 - Apply the RNRB and NRB Step 5 - Deduct debts Step 6 - Apply exemptions and reliefs Step 7- Calculate tax
C. Step 1 - Calculate the cumulative total, Step 2 - Identify the taxable estate, Step 3 - Value the taxable estate, Step 4 - Deduct debts, Step 5 -Apply exemptions and reliefs, Step 6 - Apply RNRB, Step 7 - Apply NRB and calculate tax
It is necessary to start by calculating the cumulative total, then identify and value the taxable estate. Deduct debts from the gross value of the estate to reach the net value, then apply exemptions and reliefs. RNRB should be applied before the basic NRB, then calculate the tax.
A woman died six months ago. Her estate now includes the following debts:
i. Legal fees for probate work ii. Income tax bill for period up to death iii. Credit card bill for pre-death spending iv. Funeral bill v. Post-death house clearance invoice
Which of the following correctly lists the debts that can be deducted for inheritance tax purposes?
A. All of them
B. The funeral bill only
C. The income tax, credit card bill and funeral bill
D. None of them
E. The legal fees, income tax, credit card bill and funeral bill
C. The income tax, credit card bill and funeral bill
The deceased’s income tax and pre-death liabilities are deductible, as are funeral expenses. The other expenses are not deductible for tax purposes (but can be paid from the estate assets).
A woman died leaving a will that appoints her daughter as executrix. There are no provisions within the will which affect the incidence of payment of inheritance tax (‘IHT’).
The woman’s taxable estate contains the following items:
Bank accounts
Property owned tenants in common with her mother
A life interest in a trust
Who will be liable for paying IHT following the woman’s death?
A. The woman’s daughter, mother and trustees of the trust
B. The woman’s mother and trustees of the trust
C. The woman’s daughter and mother
D. The woman’s daughter and the trustees of the trust
E. The woman’s daughter only
D. The woman’s daughter and the trustees of the trust
The liability for paying tax on the free-estate (here the bank accounts and share of the property owned as tenants in common) lies with the woman’s daughter as her executor under the general rule. The liability for paying tax on the trust interest lies with the trustees of the trust.
A man dies leaving a will that makes no express provision relating to the payment of inheritance tax (‘IHT’). By his will the man gives his:
Quoted shares to his father (no business property relief applies) (£40,000)
Personal possessions to his mother (£30,000)
£50,000 to his niece (this gift is not expressed to be free of tax)
The remaining assets in his estate are worth £220,000 and pass to the man’s nephew under the gift of residue.
Which of three assets noted above should the man’s PRs use to pay the IHT due following his death?
A. Quoted shares
B. Personal possessions
C. Any of them – the PRs may choose which items are used to meet general testamentary expenses
D. None of them
E. £10,000
D. None of them
The general rule is that the residuary estate bears the burden of the IHT due in respect of the assets passing to the PRs and that other gifts in the will are made free of tax.
The other options were incorrect because they involved using assets given away specifically in the will and did not form part of the residuary estate.
A woman dies 9 years after making an LCT and 2 years after making a large PET to her daughter.
Inheritance tax is payable following her death estate.
By her will the woman appoints her spouse as her executor, gives her house to her brother and leaves the remainder of her estate “after all taxes have been paid” to her grandson.
Which of the following is correct with regards the payment of IHT due following the woman’s death?
A. The burden of the IHT will be shared between the woman’s brother and grandson
B. The woman’s daughter cannot be liable to pay IHT
C. The value of the LCT must be grossed-up before the IHT liability can be determined
D. Any IHT payable in respect of the lifetime transfers will be met from the residuary estate (the general rule has been varied)
E. The trust assets cannot be used to pay any of the IHT due
E. The trust assets cannot be used to pay any of the IHT due
The LCT was made more than 7 years before her death and is therefore not assessed to IHT at this time. As such, none of the trust assets can be used to meet the IHT bill. The other options were incorrect because:
The PET failed and if IHT is due in respect of the lifetime transfer, the woman’s daughter would be liable to pay this.
Grossing up occurs in respect of the IHT due on creation of the trust, not following death.
The burden of IHT would not be shared between the beneficiary of a specific gift and the residuary beneficiary unless the testator had given a direction in her will to vary the general rule.
The expression “all taxes” does not vary the general rule.
