Inheritance tax: self-test answers

Test your understanding: answers

(1). A Wong’s personal representatives can claim Wing’s unused nil rate band of £225,000 (325,000 – 100,000), so the amount of nil rate band available against Wong’s estate is £550,000 (325,000 + 225,000).

(2). D The PET made on 22 May 2020 utilises all of Winston’s annual exemption for 2020-21. The value of the PET made on 7 September 2021 is therefore £4,200 (7,200 less the annual exemption of 3,000 for 2021-22).

(3). D Arnold is paying the IHT liability, so the net gift must be grossed up. The IHT liability is therefore £28,750 ((440,000 – 325,000) x 20/80).

(4). C The due date is the later of (1) 30 April following the end of the tax year in which the gift is made, and (2) six months from the end of the month in which the gift is made.

(5). B The maximum IHT saving is £140,000 ((175,000 + 175,000) at 40%), but this is restricted according to the value of the main residence. The potential IHT saving is therefore £136,000 (340,000 at 40%).

(6). C Both mortgages are deductible, so the value to be included in Min’s estate is £505,000 (336,000 + 413,000 – 160,000 – 84,000).

(7). D Min’s promise to pay the nephew’s legal fee is not deductible because it is not legally enforceable. The total amount of deductions is therefore £23,800 (18,400 + 5,400).

(8). B The PET made on 22 August 2012 is not relevant when calculating the IHT on Min’s chargeable estate because it will have been made more than seven years before the date of his death on 25 March 2022. The amount of IHT payable is therefore £290,000 ((850,000 – (325,000 – 200,000)) at 40%).

(9). C The value of Mon’s shares held before the transfer is £198,000 (5,500 x £36), and the value that will be held after the transfer is £94,500 (4,500 x £21). The value that will be transferred is therefore £103,500 (198,000 – 94,500).

(10). C When making gifts (either during lifetime or on death) it can be beneficial to skip a generation so that gifts are made to grandchildren rather than children. This avoids a further charge to IHT when the children die. Gifts will then only be taxed once before being inherited by the grandchildren, rather than twice.