Wills IHT MCQs Flashcards
A property was purchased as tenants in common by an unmarried couple in unequal shares. The woman owned 80% and the man owned 20%.
The woman died last month and by her will leaves her share of the property to her son absolutely.
The current market value of the property is £100,000. There is no mortgage.
The woman’s estate will be subject to inheritance tax (IHT).
What will be the value of woman’s share of the property for IHT purposes?
£80,000 less a discount to reflect the fact that the property was co-owned.
£80,000 - no discount is available because the related property rules apply.
£80,000 - no discount is available because the couple were not married.
£0 as the property passes by survivorship.
£50,000 less a discount to reflect the fact that that the property was co-owned.
£80,000 less a discount to reflect the fact that the property was co-owned.
Correct: The value of the woman’s share is £80,000 (she owned 80% of the total worth £100,000). The woman co-owned the property and a discount to reflect the fact that the property was co-owned can be applied.
The other options were incorrect because:
- The property does not pass by survivorship, but in any event, the value of the woman’s share is taxable whether owned as joint tenants or tenants in common
- The value of her share is proportionate to share she owned, not the number of co-owners. A 50/50 split applies to joint tenants and those owning as tenants in common in equal shares.
- The related property rules apply to married couples and are not relevant here.
- A discount is available because the couple were not married. It would not have been available if they were.
A man died yesterday leaving his whole estate to a life interest trust. The man’s spouse and children survive him. The man’s spouse is the life tenant of his will trust and his children are the remaindermen.
The man had not made any lifetime gifts.
His estate comprised his home worth £500,000 (free of mortgage) and various bank accounts totalling £120,000. The man’s debts and funeral expenses totalled £8,000.
In the tax year of the man’s death, the basic nil rate band is £325,000 and the main residence nil-rate band is £175,000.
How much inheritance tax will be payable on the man’s estate?
£114,800
£0
£244,800
£130,000
£78,000
£0
Correct: The whole of the man’s estate passes to a life interest trust in which his spouse is the life tenant. Spouse exemption applies to the whole estate and no inheritance tax is payable. The other options were incorrect because spouse exemption was not applied.
A woman died and by her valid will left the whole of her estate to her adult children.
The woman’s civil partner died before the woman and left the woman the whole of her estate.
Neither the woman nor her civil partner had made any lifetime transfers.
The woman’s home is worth £700,000 and she had savings of £400,000 and other assets worth £1.6 million.
What is the value of the inheritance tax nil rate band available for the woman’s estate?
£825,000
£650,000
£325,000
£500,000
£1,000,000
£650,000
Correct.
The woman has her own NRB of £325,000.
The woman’s PRs can also claim the TNRB in respect of her civil partner who died before her. We know that the woman’s civil partner left all of her estate to the woman. Therefore, the woman’s civil partner did not use her own NRB because her whole estate qualified for civil partner exemption.
As neither made any lifetime transfers the maximum amounts are available.
The RNRB does not apply as the total value of the woman’s estate is above the threshold.
A man died yesterday leaving his whole estate to his son. The man had never married or entered a civil partnership and had not made any lifetime gifts.
His estate comprised his home worth £150,000 (free of mortgage) which he had lived in for over 20 years and various bank accounts totalling £340,000. He also owned a house worth £180,000 free of mortgage which was rented out to tenants and had never been his residence.
The man’s debts and funeral expenses totalled £20,000.
In the tax year of the man’s death, the basic nil rate band is £325,000 and the main residence nil-rate band is £175,000.
How much inheritance tax will be payable on the man’s estate?
£0
£70,000
£78,000
£60,000
£130,000
£70,000
Correct.
Step 1: The man’s cumulative total was 0 as he made no lifetime gifts.
Steps 2/3: The man’s taxable estate includes both properties and the bank accounts with a total of £670,000.
Step 4: The man’s debts and funeral costs which total £20,000 can be deducted, leaving £650,000.
Step 5: No exemptions or reliefs apply.
Step 6: The man can claim his own RNRB. No transferrable RNRB applies as he does not have a spouse who pre-deceased. His main residence is a QRI and it passes to his son (a lineal descendent) absolutely. The amount of the RNRB is £150,000 (capped at the value of the QRI). The let property is not a QRI so an RNRB cannot be claimed. The total RNRB is: £150,000. Once applied to his estate, £650,000 - £150,000 = £500,000 remains.
Step 7: The man’s basic NRB is £325,000 (his cumulative total was 0 – so no deduction is made). No transferrable NRB applies as he did not have a pre-deceasing spouse.
0 - £325,000 @ 0%. Balance of £175,000 (£500,000 - £325,000) @ 40% = £70,000.
A man died and by his valid will left the whole of his estate to his adult children.
The man’s civil partner died before the man and left the man the whole of his estate.
Neither the man nor his civil partner had made any lifetime transfers.
The man’s estate was valued at £1.5 million, which includes his home worth £500,000.
What is the value of the inheritance tax nil rate band available for the man’s estate?
£1,000,000
£825,000
£325,000
£500,000
£650,000
£1,000,000
Correct.
The man has his own NRB of £325,000.
The man’s PRs can also claim the TNRB in respect of his civil partner who died before him. We know that the man’s civil partner left all of his estate to the man. Therefore, the man’s civil partner did not use his own NRB because his whole estate qualified for civil partner exemption.
The RNRB of £175,000 also applies. The man left a qualifying residential interest (his home) to his lineal descendants (his children). As the man’s civil partner did not use his own RNRB, this can also be claimed by the man.
As neither of them made any lifetime transfers the maximum amounts are available.
A woman died recently. At the date of her death she owned a residential property, a commercial property and cash in a savings account.
The woman had a pension which paid a discretionary lump sum following her death. The woman had nominated her children as the beneficiaries.
The woman had a remainder interest in a trust set up following the death of her brother. The woman’s mother is the life tenant and she is still alive.
Which of the following best describes the assets included in the woman’s taxable estate?
The commercial property, her savings account, the discretionary pension lump sum and her remainder interest in her brother’s will trust.
Both properties, her savings account and her remainder interest in her brother’s will trust.
Both properties and her savings account.
The commercial property and her savings account.
Both properties, her savings account and the discretionary pension lump sum.
Both properties and her savings account.
Correct. Residential and commercial properties are included, as is the cash balance of any bank account. The pension lump sum is excluded because it is discretionary in nature and has been nominated for her children - no money is payable to her estate. Her remainder interest in the trust is excluded property for inheritance tax purposes (the life tenant is still alive so the trust capital had not been paid to her before she died). The incorrect options either excluded an item that should have been included, or included an item that should not have been.
A man who had owned his farm for 30 years ceased farming 5 years ago when he let the farmland on a long agricultural tenancy. The man continued to live in the farmhouse as his home. The man has just died.
Which of the following best describes how agricultural property relief (APR) will apply to the man’s estate?
APR will not be available as the tenant had not occupied the property for 7 years.
APR will be available on the farmland at 100% but will not be available on the farmhouse.
APR at 100% will be available on the farmland and the farmhouse.
APR at 50% will be available on the farmland and farmhouse.
APR will be available on the farmland at 50% but will not be available on the farmhouse.
APR will be available on the farmland at 100% but will not be available on the farmhouse.
Correct: Where the land is not farmed by the owner at the date of the transfer (here being death) it must have been owned by the transferor and occupied for agricultural purposes by the owner or another for 7 years. That requirement is satisfied as the occupation for agricultural purposes by the farmer is added to the 5 years of occupation by the tenant. As the tenancy although a long tenancy was a granted after 2005 100% relief is available. APR is not available on the farmhouse as it is no longer occupied for agricultural purposes.
A woman died yesterday and by her will leaves the whole of her estate (except for a £10,000 legacy to a registered charity) to her children. Her assets include a car (£3,000), household possessions (£15,000) and bank accounts (£145,000). A year before she died the woman transferred a property (now worth £200,000) to her niece. The woman continued to live alone in the house until she died and did not pay her niece any rent.
In the tax year of the woman’s death, the basic nil rate band is £325,000 and the main residence nil-rate band is £175,000.
The woman made no lifetime gifts. Her debts and funeral costs are £12,000.
How much inheritance tax will be payable on the woman’s estate?
£11,200
£6,400
£136,400
£0
£10,400
£6,400
Correct: The woman’s taxable estate includes her car, personal possessions, bank accounts and also the current value of the property. Although she was not the legal owner of the property when she died, its value is included in her taxable estate because she made a gift with reservation of benefit. The total value of her taxable estate is: £363,000. Her debts and funeral costs of £12,000 are deducted to leave £351,000. After applying charity exemption of £10,000, £341,000 remains.
No RNRB applies as she did not leave the residence to a lineal descendent on her death. After the basic NRB of £325,000 is applied, £16,000 remains chargeable at 40%, which gives £6,400 of IHT payable.
The other options were incorrect because:
- The value of the property was excluded (a gift with reservation of benefit) but should not have been
- No deduction was made for debts and funeral expenses
- No charity exemption was applied
- The RNRB should not have been applied
- The basic NRB was not applied but should have been
A woman died recently leaving an estate comprising her home (£350,000), bank accounts (£2,000) and private company shares, which were purchased one year before she died (£30,000). The cost of her funeral was £7,000.
The woman had never married or entered a civil partnership and had made no lifetime gifts.
The whole of the woman’s estate will pass to her nephew.
In the tax year of her death the NRB is £325,000 and the main residence NRB is £175,000.
How much inheritance tax is due following the woman’s death?
£20,000
£0
£8,000
£14,000
£150,000
£20,000
Correct. Step 1: She made no lifetime gifts so has a cumulative total of 0. Step 2/3: The woman’s estate is worth £382,000 (home + bank account + shares). Step 4: Funeral costs (£7,000) can be deducted leaving £375,000. Step 5: No BPR applies because she did not own the company shares for at least 2 years before she died. Step 6: No residence NRB applies as the house passes to her nephew. Step 7: The woman’s estate benefits from her own full NRB (there is no transferred amount as she never married). £375,000 less £325,000 leaves balance of £50,000 @ 40% = £20,000.
A man inherits his wife’s business which she had owned for 10 years. One year later he makes a potentially exempt transfer (PET) of the business to his son. Six months later the son sells the business with the man’s approval. The man dies a further six months later.
Which of the following best describes how business property relief (BPR) applies to the man’s lifetime gift of the business (failed PET) following the man’s death?
BPR is available as the man was still alive when his son sold the business.
BPR is not available on the failed PET as the son no longer owned the business when his father died.
BPR is not available on the failed PET as the man had not owned the interest in the business for two years when he made the gift.
BPR is available on the failed PET and reduces the value of the gift.
BPR is available on the failed PET and reduces the tax payable on the gift.
BPR is not available on the failed PET as the son no longer owned the business when his father died.
Correct: The man’s lifetime gift of the business to his son is a failed PET as the man died within 7 years of making the gift. When assessing the failed PET, BPR can be claimed only if i) the assets would have qualified for relief when the gift was made by the man, and, ii) they still qualify for relief in the hands of the son. Here, the gift would have qualified for BPR when it was made because the man can include his spouse’s period of ownership (he inherited the assets following her death) and so satisfy the two-year ownership requirement. However, when the man died the son no longer owned the property and so BPR does not apply. BPR cannot be claimed in respect of the man’s lifetime gift.
Question 1
A man has been making various lifetime transfers for the past 10 years. Each year on 7
April he has given £50,000 from his savings to his son. He also gives each of his three
grandchildren £100 on their birthdays (which are in September and October). Additionally,
in May of this tax year he put £300,000 into a discretionary trust for the benefit of his
grandchildren.
Which of the following best describes the man’s inheritance tax position in relation to
the transfers made in this tax year?
A He has made potentially exempt transfers of £47,000.
B He has made potentially exempt transfers of £50,000.
C He has made potentially exempt transfers of £50,300.
D He has made lifetime chargeable transfers of £350,000.
E He has made lifetime chargeable transfers of £350,300.
Answer
Option A is correct. The £100 to each of the grandchildren is covered by the small gifts
exemption. The transfer into the discretionary trust is immediately chargeable and is not a
potentially exempt transfer (PET). The first £3,000 of the transfer to the son is exempt which
leaves £47,000 as a PET.
Option B is wrong as it has not deducted the annual exemption.
Option C is wrong as it has added in the £300 gifts covered by the small gifts exemption and
not deducted the annual exemption.
Option D is wrong as it has included the potentially exempt transfer as chargeable and has
not deducted the £3,000 annual exemption.
Option E is wrong as it has included the £300 gifts covered by the small gifts exemption and the
potentially exempt transfer as chargeable and has not deducted the £3,000 annual exemption.
Question 2
A testator made a valid will six months ago which included the following gifts of company
shares:
‘I give to my nephew all my shares in AB plc.’
‘I give to my niece all my shares in XY plc.’
‘I give to my daughter all my shares in DEF Limited.’
The testator died last week. All of these beneficiaries survived the testator, and the testator
owned all of the above- mentioned shares.
The shares in AB plc were purchased 18 years ago and represent a 30% shareholding in
the company, which makes clothing and is listed on the London Stock Exchange. The shares
in XY plc were purchased 10 years ago and represent a 10% shareholding in the company,
which makes vehicles and is also listed on the London stock exchange. The shares in
DEF Limited were inherited from the testator’s father 25 years ago and represent a 45%
shareholding in the testator’s family private company which makes bathroom fittings.
Which of the following best explains whether these gifts qualify for business property
relief for inheritance tax?
A All three gifts will attract business property relief at the rate of 100%.
B The gift of shares in AB plc and XY plc will both attract business property relief at the
rate of 50% and the gift of shares in DEF Limited will attract business property relief at
the rate of 100%.
C The gift of shares in AB plc and the gift of shares in DEF Limited will both attract
business property relief at the rate of 50% but the gift of shares in XY plc does not
qualify for the relief.
D All of the three gifts will attract business property relief at the rate of 50%.
E The gift of shares in AB plc and XY plc do not qualify for business property relief but
the gift of shares in DEF Limited will attract business property relief at the rate of 100%.
Answer
Option E is correct as in order to qualify for business property relief the shares must be owned
for at least two years before death and the company must be a trading company (satisfied for
all of the shares) but if the shares are in a company listed on a recognised stock exchange,
the owner must have had voting control of the company, which is not the case here. This is not
required for an unquoted company, where the relief is 100%.
Option A is wrong as although the unquoted shares attract 100% relief, the quoted shares only
attract 50% if they give the owner control of the company.
Option B is wrong as the unquoted shares attract 100% relief, and the 30% holding does not
give voting control of AB plc.
Option C is wrong as although XY plc shares do not attract any relief, neither do the AB plc
shares and the unquoted shares attract 100% relief.
Option D is wrong as the unquoted shares attract relief at 100% and the quoted shares do not
attract any relief as they do not give voting control.
Question 3
A man, who never married or formed a civil partnership, died owning the following assets,
which he left to his friend: a yacht (worth £500,000), bank accounts (worth £200,000), and
chattels (worth £70,000). The deceased had debts and funeral expenses totalling £20,000.
The only lifetime transfer made by the deceased was a 21st birthday gift of £15,000 to his
niece one year before he died. At the relevant time the nil rate band was £325,000 and
annual exemption £3,000.
What is the amount of inheritance tax payable on the deceased’s estate?
A £170,000.
B £176,000.
C £173,600.
D £174,800.
E £181,600.
Answer
Option C is correct as the chargeable estate is £750,000. The potentially exempt transfer to
the niece, after deducting two annual exemptions, is £9,000 and so there is only £316,000 nil
rate band available, leaving the remaining £434,000 to be taxed at 40% = £173,600.
Option A is wrong as it has not included the effect of the potentially exempt transfer on the nil
rate band.
Option B is wrong as it has omitted the annual exemptions in relation to the potentially
exempt transfer.
Option D is wrong as it has included only one annual exemption.
Option E is wrong as it has not deducted debts from the value of the estat
A man died on 4 May 2022. He left his entire estate to his nephew. He was a bachelor and did not make any lifetime gifts. His estate comprised a house free of mortgage worth £175,000 which he had lived in for over 20 years and bank and building society accounts with balances totalling £550,000. He also owned a house worth £170,000 free of mortgage which he inherited from his aunt and which has been rented out to tenants for the last 30 years. The man’s debts and funeral expenses totalled £9,000.
In the 2022/23 tax year the nil rate band is £325,000 and the main residence nil rate band is £175,000.
How much Inheritance Tax will be payable on the man’s estate?
A. £354,400
B. £224,400
C. £154,400
D. £152,000
E. £84,400
B - £224,400
A man died in December 2022. He made three lifetime gifts only, which were all to his son, to help with the cost of repairs to the son’s house. The gifts were as follows:
May 2016 £3,000
July 2017 £4,000
August 2019 £7,000
What is the man’s cumulative total for Inheritance Tax purposes at the date of his death?
A. £0
B. £1,000
C. £2,000
D. £4,000
E. £5,000
C - £2,000
