Inheritance Tax and Wills and Probate MCQ Questions
Inheritance Tax
Question 1
Arthur dies in July 2020 leaving everything to his son, Derek. Derek has provided a list of assets for
Arthur made up of a house worth £400,000, a portfolio of quoted shares worth £60,000, an
insurance policy paying out £90,000 which he assigned to Derek 9 years ago and bank accounts with
balances totalling £32,000. He had credit card bills and utilities bills unpaid, amounting to £8,000.
Arthur's wife, Milly, died ten years ago, leaving all her estate to Arthur. Neither Arthur nor Milly
made any lifetime gifts (apart from the assignment of the insurance policy mentioned above).
Which ONE of the following is the CORRECT value transferred of Arthur's estate for inheritance tax
purposes (Step 2 of the IHT calculation)?
1.
£582,000
2.
£574,000
3.
£484,000
4.
£492,000
Correct answer: C.
The insurance policy was assigned to Derek, so Arthur was not beneficially entitled to it at the date
of his death. It is therefore not included in the value of his estate.
Value of estate:
house £400,000
shares £60,000 +
bank accounts £32,000 = 492,00
Less unpaid bills - (£8,000) =484.000
£484,000
,Question 2
This is a continuation of the previous question. Arthur dies in July 2020 leaving everything to his son,
Derek. Derek has provided a list of assets for Arthur made up of a house worth £400,000, a portfolio
of quoted shares worth £60,000, an insurance policy paying out £90,000 which he assigned to Derek
9 years ago and bank accounts with balances totalling £32,000. He had credit card bills and utilities
bills unpaid, amounting to £8,000. Arthur's wife, Milly, died ten years ago, leaving all her estate to
Arthur. Neither Arthur nor Milly made any lifetime gifts (apart from the assignment of the insurance
policy mentioned above). None of the assets in Arthur's estate qualifies for any relief or exemption.
Which ONE of the following is the CORRECT amount of inheritance tax payable on Arthur's estate?
1.
Nil
2.
£63,600
3.
£34,000
4.
£193,600
Correct answer: A.
There is no inheritance tax payable on Arthur's estate. Arthur's estate was valued at £484,000 and
that was the amount chargeable to inheritance tax as none of the assets in the estate qualified for
any relief or exemption. Neither Arthur nor Milly had made any lifetime gifts that used
their respective nil rate bands (the assignment of the insurance policy by Arthur at its surrender
value at that time was over 7 years before his death and so became exempt). As Arthur's house
passes to his son, Arthur's estate qualifies for his own residence nil rate band and takes the benefit
of the unused residence nil rate band of his spouse, Milly. Arthur's estate therefore qualifies for a
100% uplift in the level of his residence nil rate band increasing it to £350,000 (£175,000 x 2).
Arthur's estate can take the benefit not only of his own nil rate band but also that of Milly. Arthur's
estate therefore qualifies for a 100% uplift in the level of his nil rate band, increasing it to £650,000
(£325,000 x 2). The whole of his estate is therefore covered.
,Question 3
Jemima, who is single, dies in September 2020 and leaves everything to her daughter. Her estate for
IHT is £300,000 and there are no exemptions and reliefs. The estate does not include any qualifying
residential interest.
Three years before her death she gave her daughter £146,000. Apart from this, she has made no
lifetime transfers.
Which ONE of the following is the CORRECT amount of IHT payable on Jemima's death estate?
1.
£120,000
2.
£6,000
3.
£48,400
4.
£46,000
IHT of £46,000 is payable on Jemima's death estate. The value of her death estate is £300,000 and
there are no exemptions and reliefs. We need to know what rate(s) of tax to apply to the value of
the death estate. The residence nil rate band is not available as the estate did not include any
qualifying residential interest. The first £6,000 of the lifetime gift was exempt (2 years' annual
exemptions). The remaining £140,000 was a potentially exempt transfer which has become
chargeable. Thus, only the first £185,000 of Jemima's death estate is taxed at 0% and the remaining
£115,000 is taxed at 40%.
, Question 4
In June 2020 Wisan gives £600,000 to his favourite grandson, and on the following day pays
£100,000 to a discretionary trust.
Apart from making gifts on 6 April each tax year to use his annual exemption Wisan has never made
any other lifetime transfers.
Which ONE of the following statements is CORRECT?
1.
No inheritance tax is payable at the date of the two gifts.
2.
£20,000 inheritance tax is payable
3.
£85,000 inheritance tax is payable
4.
£40,000 inheritance tax is payable
The gift of £600,000 to his grandson is a PET and is not yet chargeable. The gift of £100,000 into a
discretionary trust is a LCT. This is chargeable at the date of the gift. However, there are no other
chargeable lifetime transfers in the seven years before the date of this gift so Wisan's full nil rate
band is available. The gift into the discretionary trust will fall within Wisan's nil rate band. No
inheritance tax is payable at the date of these gifts.
