Tax Planning in Wills: NRB Gifts Flashcards
(12 cards)
What does “using the NRB” on death mean?
A) Giving exempt assets to a charity
B) Making chargeable transfers taxed at 0%
C) Leaving everything to a spouse
D) Avoiding CGT on lifetime gifts
B) Making chargeable transfers taxed at 0%
Explanation: “Using the NRB” means making taxable gifts to non-exempt beneficiaries that are taxed at 0% because they fall within the nil rate band.
Why might a married couple choose not to use the NRB on the first death?
A) To preserve it for use at the second death when it might be bigger
B) Because it is illegal to use the NRB on first death
C) To avoid capital gains tax
D) To prevent probate fees
A) To preserve it for use at the second death when it might be bigger
Explanation: If the NRB grows in future years, the second estate can claim the unused percentage of a larger amount.
Which formula clause is preferred when drafting a NRB gift?
A) “I give £325,000 to my child”
B) “I give my available nil rate band to my child”
C) “I give 10% of my estate to my child”
D) “I give £1 million to my child”
B) “I give my available nil rate band to my child”
Explanation: A formula clause ensures flexibility if the NRB changes after the will is made, preventing tax surprises.
James leaves £200,000 to his children and the residue of his estate to his wife.
What happens to James’ NRB?
A) It is used up completely
B) It is partly used against the gift to children
C) It is wasted entirely
D) It is transferred at full value to the wife
B) It is partly used against the gift to children
Explanation: Gifts to children are chargeable, so the NRB will partly shelter the gift. The remaining NRB is transferred to his wife.
If a testator makes a fixed sum gift of £325,000 to a child but part of the NRB is used up, what happens?
A) The whole gift is still tax-free
B) The estate might owe IHT on the gift
C) The gift fails
D) The child pays CGT
B) The estate might owe IHT on the gift
Explanation: A fixed sum gift can accidentally exceed the available NRB at death, causing an unexpected IHT charge.
Sarah and Tom are unmarried. Sarah dies, leaving her £600,000 estate entirely to Tom.
What is the immediate tax outcome?
A) No IHT payable because of transferable NRB
B) IHT payable immediately on the excess over £325,000
C) NRB preserved and passed to Tom
D) No IHT due because of marital exemption
B) IHT payable immediately on the excess over £325,000
Explanation: Unmarried couples do not get spouse exemption, so IHT is payable above the NRB threshold.
In what situation is it most important to fix the NRB amount at death instead of using a formula clause?
A. Where the client expects the NRB to decrease
B. Where the client expects the NRB to stay constant
C. Where the client expects the NRB to increase
D. Where the estate is below the NRB
A. Where the client expects the NRB to decrease
Explanation: If the NRB were to decrease after the testator’s death but before the survivor’s death, fixing it earlier could preserve the higher NRB amount.
Jordan’s will leaves “the maximum sum that can be given without tax” to his nephews, and residue to his wife. Jordan’s estate is £400,000. What happens if the NRB has increased to £350,000 by the time he dies?
A. £75,000 is taxed at 40%
B. No tax at all
C. £325,000 goes to nephews tax-free
D. £350,000 goes to nephews tax-free
D. £350,000 goes to nephews tax-free
Explanation: The phrase “maximum sum that can be given without tax” means the gift adjusts to the available NRB at the time of death — here £350,000.
Anna and Luke are unmarried. Anna leaves her £600,000 estate to Luke. What could have reduced overall IHT across both their estates?
A. Leaving her whole estate to Luke directly
B. Leaving £325,000 to a discretionary trust for Luke and family
C. Leaving everything to a charity
D. Doing nothing
B. Leaving £325,000 to a discretionary trust for Luke and family
Explanation: This would have used Anna’s NRB at her death and reduced the size of Luke’s taxable estate later, saving overall IHT.
If a will gives the NRB to a non-exempt beneficiary and the residue to a spouse, what happens if the deceased’s NRB has been partially used during lifetime?
A. No NRB is available
B. It depends whether lifetime gifts exceeded £500,000
C. The full NRB is available to the non-exempt gift
D. Only the unused NRB is available to the gift
D. Only the unused NRB is available to the gift
Explanation: Lifetime transfers (like PETs and LCTs) can use part of the NRB, so only the balance is available at death
Why might a married couple still choose to use the NRB on the first death even though it is transferable?
A. To maximise the RNRB
B. To simplify the will drafting
C. To avoid paying legal fees
D. To waste the NRB
A. To maximise the RNRB
Explanation: Using the NRB early could reduce the size of the survivor’s estate and help ensure they qualify for the residence nil rate band without tapering.
What is the best drafting technique to ensure the NRB gift remains tax-efficient despite future changes in the law?
A. Fixed-sum clause
B. Discretionary trust without formula
C. Formula clause linked to NRB
D. Gift of an exact percentage of the estate
C. Formula clause linked to NRB
Explanation: A formula clause adjusts automatically to future changes in the NRB, ensuring the gift remains tax-efficient without the need for rewriting the will.
