TXF6 UK
Syllabus D. Inheritance Tax D1. Basic principles of computing transfers of value

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

MC Question 1 -

On 1 July 2014, Sameer made a cash gift of £2,500 to his sister.
On 1 May 2015, he made a cash gift of £2,000 to a friend.
On 1 June 2015, he made a cash gift of £50,000 to a trust.
Sameer has not made any other lifetime gifts.

In respect of Sameer’s cash gift of £50,000 to the trust, what is the lifetime transfer of value for inheritance tax purposes after taking account of all available exemptions?

A £48,500
B £44,000
C £46,000
D £46,500

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MC Question 19 -

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?

A £240,000
B £160,000
C £0
D £80,000

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Question 4b - Sample

James died on 22 January 2015. He had made the following gifts during his lifetime:

(1) On 9 October 2007, a cash gift of £35,000 to a trust. No lifetime inheritance tax was payable in respect of this gift.

(2) On 14 May 2013, a cash gift of £420,000 to his daughter.

(3) On 2 August 2013, a gift of a property valued at £260,000 to a trust. No lifetime inheritance tax was payable in respect of this gift because it was covered by the nil rate band. By the time of James’ death on 22 January 2015, the property had increased in value to £310,000.

On 22 January 2015, James’ estate was valued at £870,000. Under the terms of his will, James left his entire estate to his children.

The nil rate band of James’ wife was fully utilised when she died ten years ago.

The nil rate band for the tax year 2007–08 is £300,000, and for the tax year 2013–14 it is £325,000.

Required:
(b) Explain why it might have been beneficial for inheritance tax purposes if James had left a portion of his estate to his grandchildren rather than to his children. (2 marks)

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MC Question 11 - Sample

Heng is a wealthy 45 year old who would like to reduce the potential inheritance tax liability on her estate when she dies.

Which of the following actions will NOT achieve Heng’s aim of reducing the potential inheritance tax liability on her estate when she dies?

A. Changing the terms of her will so that the residue of her estate goes to her grandchildren rather than her children
B. Making lifetime gifts to trusts up to the value of the nil rate band every seven years
C. Changing the terms of her will so that the residue of her estate goes to her husband rather than her children
D. Making lifetime gifts to her grandchildren early in life

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Question 1a -

Zoe died on 17 February 2015. She had made the following gifts during her lifetime:

(1) On 7 March 2010, Zoe made a cash gift of £270,000 to her son as a wedding gift when he got married.
(2) On 21 June 2010, Zoe made a cash gift of £620,000 to a trust. Zoe paid the inheritance tax arising from this gift.

Zoe’s husband had died on 25 July 2007, and 20% of his inheritance tax nil rate band of £300,000 for the tax year 2007–08 was not used.

The nil rate band for the tax year 2009–10 is £312,000, and for the tax year 2010–11 it is £325,000.

Required:
(a) Explain why it is important to differentiate between potentially exempt transfers and chargeable lifetime transfers for inheritance tax purposes. (2 marks)

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