ACCA ATX ^UK Syllabus A3. Inheritance Tax - Deed of variation - Past Papers ^{7 / 7}

Your manager has had a meeting with Florina and Kanzi who are clients of your firm. Florina’s father, Winston, also attended the meeting. The notes prepared following the meeting and an email from your manager setting out the work he requires you to do are set out below.

Meeting with Florina, Kanzi and Winston on 6 September 2017
The meeting was attended by Florina and Kanzi (who have been living together since 1999 but are not married) and Winston (Florina’s father). 
All three individuals are resident and domiciled in the UK. They have no sources of income or chargeable gains other than those referred to below.

Winston
Winston is in very poor health and is not expected to live for more than 12 months. It is estimated that Winston’s total chargeable estate is currently worth £1,400,000. The values of his assets are not expected to change between now and his death.

Winston intends to make a donation of £150,000 to a registered UK charity. This donation will be either a lifetime gift or a legacy from his estate on death.

Winston’s current will leaves the whole of his estate to Florina and his two other children.

Winston’s only previous lifetime gift was a chargeable transfer, after the deduction of exemptions, of £200,000 to a trust on 1 June 2015.

Winston wants to carry out some sophisticated tax-planning in order to reduce the inheritance tax which will be payable in respect of his death estate.

Email from your manager – dated 7 September 2017

b) Winston’s charitable donation

Prepare calculations, with supporting explanations, to show, by reference to inheritance tax only, whether it is more tax-efficient for Winston to make the charitable donation now or via his will. You should ignore the possibility of any further inheritance tax planning taking place.

Tax manager

(b) Winston’s charitable donation.               (6 marks)

Your manager has sent you the notes she prepared following a meeting with Pippin, an established client of your firm who is resident and domiciled in the UK. The notes together with an email from your manager are set out below.

Meeting notes from your manager – dated 8 June 2017
Receipt of £75,000

Pippin’s aunt, Esme, died on 31 January 2017. 
On 1 September 2011, Esme’s father (Pippin’s grandfather) died leaving the whole of his estate to Esme.

However, on 1 January 2012 Pippin received £75,000 but cannot remember whether the money came from Esme or from his grandfather’s estate.

On 1 November 2011, Esme had transferred cash of £375,000 to a trust for the benefit of her children.

Extract from an email from your manager – dated 8 June 2017
Please prepare a memorandum for the client files which addresses the following issues:

(ii)Receipt of £75,000
Explain, with supporting calculations, the inheritance tax implications for Pippin of the receipt of the £75,000.

Tax manager

Required: Prepare the memorandum as requested in the email from your manager. 
The following marks are available: 
Receipt of £75,000.                       (5 marks)

Your firm has been asked to provide advice in connection with inheritance tax and capital gains tax following the death of Cada. The advice relates to the implications of making lifetime gifts, making gifts to charity, varying the terms of a will and other aspects of capital gains tax planning.

Cada and her family:
– Cada, who was UK domiciled, died on 20 November 2014.
– Cada is survived by two daughters: Raymer and Yang.
– Raymer has an adult son.
– Yang has no children.

Cada – Lifetime gifts and available nil rate band:
– Cada had not made any lifetime gifts since 30 November 2010.
– Cada’s nil rate band available at the date of her death was £220,000.

Cada’s death estate and the details of her will:
– Cada owned assets valued at £1,000,000 at the time of her death.
– Cada left her house, valued at £500,000, to Raymer.
– Cada left cash of £60,000 to a UK national charity.
– Cada left her remaining assets (including a portfolio of shares) valued at £440,000, to Yang.
– None of the remaining assets qualified for any inheritance tax reliefs.

Raymer:
– Is not an accountant, but has some knowledge of the UK tax system.
– Has made four observations regarding her mother’s estate and her inheritance.

Raymer’s four observations:
– ‘My mother should have made additional gifts in her lifetime.’
– ‘The tax rate on the chargeable estate should be less than 40% due to the gift to charity.’
– ‘I do not intend to live in the house but will give it to my son on 1 July 2015.’
– ‘My mother paid capital gains tax every year. However, when she died, some of her shareholdings had a value of less than cost.’

Cada’s shareholdings at the time of her death:
– Quoted shares in JW plc valued at more than cost.
– Quoted shares in FR plc valued at less than cost.
– Unquoted shares in KZ Ltd valued at £nil.

Required:
(b) Calculate the increase in the legacy to the charity which would be necessary in order for the reduced rate of inheritance tax to apply and quantify the reduction in the inheritance tax liability which would result. (5 marks)

Your firm has been asked to provide advice in connection with inheritance tax and capital gains tax following the death of Cada. The advice relates to the implications of making lifetime gifts, making gifts to charity, varying the terms of a will and other aspects of capital gains tax planning.

Cada and her family:
– Cada, who was UK domiciled, died on 20 November 2014.
– Cada is survived by two daughters: Raymer and Yang.
– Raymer has an adult son.

Raymer:
– Is not an accountant, but has some knowledge of the UK tax system.
– Has made four observations regarding her mother’s estate and her inheritance.

Raymer’s four observations:
– ‘My mother should have made additional gifts in her lifetime.’
– ‘The tax rate on the chargeable estate should be less than 40% due to the gift to charity.’
– ‘I do not intend to live in the house but will give it to my son on 1 July 2015.’
– ‘My mother paid capital gains tax every year. However, when she died, some of her shareholdings had a value of less than cost.’

Required:
(c) Explain the capital gains tax and inheritance tax advantages which could be obtained by varying the terms of Cada’s will and set out the procedures required in order to achieve a tax-effective variation. (6 marks)