INHERITANCE TAX
QUESTION 1
Arthur dies in July 2018 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)?
A. £582,000
B. £574,000
C. £484,000
D. £492,000
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
Less unpaid bills (£8,000)
£484,000
1
, INHERITANCE TAX
QUESTION 2
This is a continuation of the previous question. Arthur dies in July 2018 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?
A. Nil
B. £63,600
C. £34,000
D. £193,600
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 £2500,000 (£125,000 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.
2
QUESTION 1
Arthur dies in July 2018 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)?
A. £582,000
B. £574,000
C. £484,000
D. £492,000
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
Less unpaid bills (£8,000)
£484,000
1
, INHERITANCE TAX
QUESTION 2
This is a continuation of the previous question. Arthur dies in July 2018 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?
A. Nil
B. £63,600
C. £34,000
D. £193,600
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 £2500,000 (£125,000 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.
2
