Inheritance Tax – The Business Relief Exemption

Question 1

What is the minimum ownership period needed to qualify for Business Property Relief (BPR)?

A) 1 year
B) 3 years
C) 5 years
D) 2 years

Answer 1

D) 2 years.
Explanation: To qualify for Business Property Relief, the asset must have been owned for at least 2 years immediately prior to the transfer.

Question 2

At what percentage rate is Business Property Relief available for shares in a private (unquoted) company?

A) 50%
B) 100%
C) 75%
D) 0%

Answer 2

B) 100%.
Explanation: Shares in a private (unquoted) trading company benefit from 100% BPR, regardless of the shareholding size.

Question 3

Jasmine dies owning business premises personally, used by her trading company. She owned them for three years. What level of BPR applies?

A) 100%
B) 75%
C) 50%
D) 25%

Answer 3

C) 50%.
Explanation: Where land or buildings are personally owned but used by a business, only 50% BPR is available.

Question 4

Which of the following transfers would be a Potentially Exempt Transfer (PET)?

A) Lifetime gift to a trust
B) Lifetime gift to a child
C) Sale of a business
D) Transfer of shares to a company

Answer 4

B) Lifetime gift to a child.
Explanation: A gift to an individual, such as a child, is a PET, only taxable if the transferor dies within 7 years.

Question 5

Alex made a PET of £200,000 to his daughter 6 years ago. He dies today with an estate of £600,000. What is his cumulative total when calculating IHT?

A) £200,000
B) £800,000
C) £600,000
D) £400,000

Answer 5

A) £200,000.
Explanation: The cumulative total includes the failed PET value (£200,000) plus the death estate will be taxed after using the nil rate band.

Question 6

What happens to a PET if the donor survives for 7 years after making the gift?

A) It becomes taxable at 20%
B) It becomes taxable at 40%
C) It becomes fully exempt from IHT
D) It is taxed as income

Answer 6

C) It becomes fully exempt from IHT.
Explanation: A PET completely escapes IHT if the donor survives 7 years after making it.

Question 7

Amir gifts his business valued at £400,000 to his son. He dies 5 years later. What is the impact on IHT if the business still qualifies for BPR in his son’s hands?

A) No IHT payable on the business
B) IHT payable at 20%
C) IHT payable at 40%
D) Business taxed like normal property

Answer 7

A) No IHT payable on the business.
Explanation: If the business still qualifies and BPR conditions are met at death, 100% BPR shields the entire gift from IHT.

Question 8

Which of these assets does NOT qualify for Business Property Relief?

A) Shares in a private trading company
B) Business premises used for trading
C) Rental property held for investment
D) Machinery used in a business

Answer 8

C) Rental property held for investment.
Explanation: BPR is not available for businesses that mainly involve investment activities such as rental properties.

Question 9

When does the Residence Nil Rate Band (RNRB) apply?

A) Always on any property
B) Only if agricultural land is transferred
C) Only when business property is transferred
D) Only if a residence is left to direct descendants

Answer 9

D) Only if a residence is left to direct descendants.
Explanation: The Residence Nil Rate Band applies when the deceased leaves a home to lineal descendants, such as children or grandchildren.

Question 10

Emma gifts £250,000 to a trust and dies 4 years later. Lifetime IHT was paid at 20%. What happens now?

A) No further tax as it was already paid
B) A refund is made
C) It is exempt from IHT
D) The transfer is reassessed at 40% with credit for tax already paid

Answer 10

D) The transfer is reassessed at 40% with credit for tax already paid.
Explanation: For a Lifetime Chargeable Transfer, if the transferor dies within 7 years, the gift is reassessed at 40%, giving credit for lifetime tax already paid.

Question 11

What happens when property qualifying for BPR is disposed of between gift and death?

A) Full BPR still applies
B) Partial BPR applies
C) No BPR applies unless replaced by qualifying property
D) It is automatically exempt

Answer 11

C) No BPR applies unless replaced by qualifying property.
Explanation: If the asset is sold or ceases to qualify, BPR is lost unless replaced with qualifying property.

Question 12

Which of the following best describes the effect of Business Asset Disposal Relief?

A) Reduces CGT to 18%
B) Reduces CGT to 24%
C) Reduces CGT to 10%
D) Waives CGT completely

Answer 12

C) Reduces CGT to 10%.
Explanation: Business Asset Disposal Relief (BADR) reduces CGT to 10% on qualifying disposals like trading businesses or shares.