Syllabus D. Inheritance Tax D1. Basic principles of computing transfers of value

D1b. Transfer of value, Chargeable Transfer, Potentially Exempt Transfer


Q19 Section B

2 marks

Adana died on 17 March 2016, and inheritance tax (IHT) of £566,000 is payable in respect of her chargeable estate. Under the terms of her will, Adana left her entire estate to her children.

At the date of her death, Adana had the following debts and liabilities:

(1) An outstanding interest-only mortgage of £220,000.

(2) Income tax of £43,700 payable in respect of the tax year 2015-16.

(3) Legal fees of £4,600 incurred by Adana's sister which Adana had verbally promised to pay.

Adana’s husband had died on 28 May 2006, and only 20% of his inheritance tax nil rate band was used on his death. The nil rate band for the tax year 2006-07 was £285,000.

On 22 April 2006, Adana had made a chargeable lifetime transfer of shares valued at £500,000 to a trust. Adana paid the lifetime IHT of £52,250 arising from this gift.

If Adana had not made this gift, her chargeable estate at the time of her death would have been £650,000 higher than it otherwise was. This was because of the subsequent increase in the value of the gifted shares.

How much of the IHT payable in respect of Adana's estate would have been saved if, under the terms of her will, Adana had made specific gifts of £400,000 to a trust and £200,000 to her grandchildren, instead of leaving her entire estate to her children?

Pick 1 option