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Question 5b

You should assume that today’s date is 1 January 2014.
Kendra Older, aged 93, is unfortunately in poor health with just a few months left to live. She has made the following gifts during her lifetime:

(1) On 20 June 2006, Kendra made a cash gift of £146,000 to a trust. No inheritance tax arose in respect of this gift.

(2) On 5 October 2012, Kendra made a cash gift of £253,000 to her children.

Kendra owns the following assets:
(1) A property valued at £970,000. The property is no longer occupied by Kendra, and if it were disposed of during the tax year 2013–14 the disposal would result in a chargeable gain of £174,000.

(2) Building society deposits of £387,000.

(3) Investments in individual savings accounts (ISAs) valued at £39,000 and savings certificates from NS&I (National Savings and Investments) valued at £17,000.

(4) A life assurance policy on her own life. The policy has an open market value of £210,000, and proceeds of £225,000 will be received following Kendra’s death.

None of the above valuations are expected to change in the near future. The cost of Kendra’s funeral will be £14,000.

Under the terms of her will, Kendra has left her entire estate to her children.

The nil rate band of Kendra’s husband was fully utilised when he died ten years ago.

The nil rate band for the tax year 2006–07 is £285,000, and for the tax year 2012–13 it is £325,000.

For the tax year 2013–14, Kendra will pay income tax at the higher rate.

Required:
(b) Advise Kendra Older why it would not be beneficial to make an immediate lifetime gift of the property valued at £970,000 to her children.

Notes:
1. Your answer should take account of both the capital gains tax and the inheritance tax implications of making the gift.

2. For this part of the question you should ignore the capital gains tax annual exempt amount and inheritance tax annual exemptions. (3 marks)