Inheritance tax and capital gains tax (for Advanced Taxation - United Kingdom (ATX-UK) (P6)) - part 3: self-test answers

Test your understanding: answers


Statement A is false
Inter-spouse transfers are exempt for the purposes of IHT but take place at no gain, no loss for the purposes of CGT.

Statement B is true
The gift will be exempt for the purposes of IHT provided that the total gifts to the donee in the tax year do not exceed £250.

The gift will be exempt for the purposes of CGT as a low value chattel provided that it did not cost more than £6,000.


Business property relief – IHT
Business property relief at the rate of 100% is available in respect of unquoted shares. However, the company owns investments (excepted assets) that represent 5% (£60,000/£1,200,000) of the value of its assets. Accordingly, 5% of the fall in value resulting from the gift will potentially be subject to IHT.

Gift relief – CGT
Gift relief is available on all unquoted trading company shares. However, because Puma Ltd is Opal’s personal company, the relief will be restricted to the gain on the disposal multiplied by the value of the company’s chargeable business assets (CBAs) divided by the value of its chargeable assets (CAs). CBAs are CAs which are used in the business.

The buildings are CAs and, because they are used in the business, CBAs.

The investments are CAs but, because they are not used in the business, they are not CBAs.

Any items of machinery that are moveable and have a value and cost of no more than £6,000 are exempt, such that they are not CAs. All other items of machinery are CAs and, because they are used in the business, also CBAs.

Receivables and inventory are not CAs (so cannot be CBAs).

Further information is required in respect of the items of machinery in order to determine whether or not they are CAs.