Inheritance Tax Flashcards
MCQs (6 cards)
A woman, who died recently, is survived by her husband and her daughter. At the time of her death the woman owned her house as beneficial joint tenants with her husband (the woman’s share is worth £375,000). The woman also had a portfolio of shares worth £300,000, a car worth £10,000 and £50,0000 in a bank account in her sole name. An insurance policy had a maturity value of £100,000 on the woman’s death (the woman assigned the benefit of the policy to her daughter five years ago). The woman had an unpaid credit card bill of £5,000.
What is the value transferred of the woman’s estate for inheritance tax purposes?
A
£830,000.
Option b: £730,000.
B
£730,000.
C
£735,000.
D
£355,000.
E
£1,105,000.
Option B is correct. The estate for inheritance tax purposes comprises everything to which the deceased was beneficially entitled immediately before death. The value transferred is calculated by adding together all such assets and then deducting the deceased’s debts. Immediately before death the woman was beneficially entitled to all the assets listed save for the maturity value of the insurance policy which was assigned to her daughter. The total value of the assets is £735,000. Deducting the unpaid credit card bill leaves a value transferred of £730,000.
Option A is wrong because it includes the maturity value of the insurance policy.
Option C is wrong because debts have not been deducted.
Option D is wrong because the interest in the house has not been included. Although the interest passes to the woman’s husband by survivorship (and therefore benefits from the spouse exemption) its value is nevertheless included in the estate for inheritance tax purposes.
Option E is wrong because the entire value of the house has been included rather than just the value of the woman’s share.
A woman died recently without having made a will. The woman had never been married, nor entered into a civil partnership. She made no lifetime gifts and had no debts. At the time of death the woman owned her home (valued at £500,000). In addition to her home, the woman had jewellery worth £125,000, a life insurance policy payable to the estate (which had a maturity value of £100,000 on death) and £250,000 worth of shares in Green Ltd, a family company that manufactures ski equipment. The woman had owned the shares for the past 20 years. The woman is survived by her 2 sons (aged 45 and 42). She had no other relatives. In the tax year of death the nil rate band is £325,000 and the residence nil rate band is £175,000.
Which of the following states the correct amount of IHT payable on the estate?
A
£0.
B
£50,000.
C
£90,000.
D
£190,000.
E
£160,000
Option C is correct. The estate consists of the house (£500,000) + life insurance policy (£100,000) + jewellery (£125,000) + shares in private limited company (£250,000) = £975,000. Business property relief applies to the shares (unquoted, trading company and owned for 2 years), leaving a taxable estate of £725,000. The residence is closely inherited by the 2 sons and therefore residence nil rate band will be available - so the first £175,000 is taxed at 0%. The full nil rate band of £325,000 will also be available as the woman made no lifetime gifts, leaving £225,000 x 40% = £90,000 tax.
Option A is wrong as it has incorrectly applied transferred nil rate band and residence nil rate band (the woman had never married or formed a civil partnership).
Option B is wrong as it has not included the insurance policy in the calculation of the estate for tax.
Option D is wrong as it has not applied business property relief.
Option E is wrong as it has not applied the residence nil rate band.
A woman died recently. She had never married or formed a civil partnership. She left a valid will which provided for a gift of £20,000 to charity, and the remainder of her estate to her nephew. Her estate comprised assets in her sole name totalling £983,000. She had debts of £8,000. The woman made a gift to her nephew of £106,000 four years before she died. Other than this, she made no lifetime gifts. The nil rate band applicable at the time of her death is £325,000.
What amount of inheritance tax is payable on the woman’s estate?
A
£300,000.
B
£292,000.
C
£252,000.
D
£294,400.
E
£382,000.
B is correct as the estate after debts is £975,000. This is reduced to £955,000 after deducting the charity exemption. The available nil rate band is reduced by the PET (to the nephew) made within the seven years before death, which has become chargeable. As she made no other lifetime transfers it is possible to deduct the £3,000 annual exemption for the tax year in which the PET was made as well as the unused exemption for the tax year before this. The PET is therefore valued at £100,000, which means that the nil rate band for the death estate is £225,000. The £955,000 is taxed: £225,000 @ 0% and £730,000 @40% = £292,000.
A is wrong as it has not deducted the charity exemption.
C is wrong as it has not allowed for the reduced nil rate band, as a result of the PET being chargeable.
D is wrong as it has not reduced the PET by the annual exemptions.
E is wrong as it has not applied the nil rate band.
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 (BPR) for Inheritance Tax?
A
All three gifts will attract BPR at the rate of 100%.
selected
B
The gift of shares in AB plc and XY plc will both attract BPR at the rate of 50% and the gift of shares in DEF Limited will attract BPR at the rate of 100%.
.
C
The gift of shares in AB plc and the gift of shares in DEF Limited will both attract BPR 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 BPR at the rate of 50%.
E
The gift of shares in AB plc and XY plc do not qualify for BPR but the gift of shares in DEF Limited will attract BPR at the rate of 100%.
Option E is correct as in order to qualify for BPR 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.
A man died one month ago leaving a valid will in which he gave his entire estate to his niece. At the time of his death the man owned a house, worth £400,000 and had savings of £100,000. The man had no debts and made no lifetime gifts. The man never married or formed a civil partnership. The man’s only surviving relative is the niece. The executors are ready to apply for the grant.]
How much inheritance tax must the executors pay before they can obtain the grant?
A
£70,000.
B
Nil.
C
£56,000.
D
£19,600.
E
£14,000.
Option E is correct. The IHT payable on the estate is £70,000 (the chargeable estate is £500,000. After deduction of the nil rate band of £325,000 this leaves £175,000 to be taxed at 40%). The house attracts the instalment option and so the executors can elect to pay the IHT on that asset in instalments, the first instalment being due six months after the end of the month of death. Only the IHT attributable to the £100,000 of non-instalment option has to be paid before the executors can obtain the grant. Applying the estate rate calculation:
£100,000 x £70,000 (IHT) = £14,000
£500,000 (chargeable estate)
Option A is wrong because it states the total IHT payable on the estate.
Option B is wrong because some IHT is payable in advance of obtaining the grant (see above).
Option C is wrong because it states the IHT payable on the instalment option property.
Option D is wrong because it includes the first instalment on the instalment property which is not yet due.
A testatrix died three months ago. She never married or formed a civil partnership. Under the terms of her valid will her entire estate passes to her nephew. At the time of her death the testatrix owned her home (valued at £550,000) and some small shareholdings in various public companies (together valued at £50,000). She also had £200,000 in a savings account. There are no debts or liabilities to consider, and the testatrix made no lifetime gifts. The executors are now ready to apply for a grant of probate.
At the time of the testatrix’s death the Nil Rate Band is £325,000 and the Residence Nil Rate Band is £175,000.
What is the minimum amount of IHT that the executors will have to pay now to obtain the grant?
Option a: £190,000.
A
£190,000.
selected
B
£59,375.
C
£37,500.
D
£130,625.
E
£47,500.
