TX: Inheritance tax

Answer: B. A cash gift from an individual to another individual is a potentially exempt transfer (PET). No IHT arises at the time of the gift. If Oliver survives 7 years from the date of the gift, it becomes fully exempt. If he dies within 7 years, it may become chargeable on death, potentially with taper relief. Option A — the 20% charge applies to CLTs, not PETs. Option C — normal expenditure out of income requires the payment to be habitual and from income surplus; a lump sum gift of capital would not qualify. Option D — CLTs arise on transfers to discretionary trusts.

Answer: A. The seven-year accumulation rule means only CLTs made in the 7 years before death are brought into account. The CLT was made in January 2019; death occurs in March 2026. January 2019 to March 2026 = 7 years and 2 months — this exceeds the 7-year window. The CLT therefore falls completely outside the accumulation period and has no effect on George's death estate. The full NRB of £325,000 is available. Option B (£125,000) would be the remaining NRB if the CLT had been within 7 years: £325,000 − £200,000 = £125,000. Options C and D are incorrect.

Answer: B. Taxable estate = £520,000 − NRB £325,000 = £195,000. IHT = £195,000 × 40% = £78,000. Option A (£208,000) applies 40% to the full £520,000 estate ignoring the NRB. Option C (£130,000) uses an incorrect calculation. Option D (£195,000) is the taxable amount before applying the 40% rate — not the tax itself.

Answer: B. When a spouse leaves their entire estate to the surviving spouse, the deceased's unused NRB can be transferred to the surviving spouse. Harold used 0% of his NRB, so 100% is transferable to Iris. Iris's available NRB = £325,000 × 2 = £650,000. IHT = (£800,000 − £650,000) × 40% = £60,000. Option A only uses Iris's own NRB. Option C would require 200% transfer — only possible with two predeceased spouses. Option D is incorrect.

Answer: A. The RNRB applies where a residential property is inherited by direct descendants. Available NRB + RNRB = £325,000 + £175,000 = £500,000. Margaret's estate of £220,000 is well below £500,000. No IHT is payable. Option B, C and D all incorrectly calculate IHT — the combined nil rate bands far exceed the estate value.

Answer: D. Annual exemption (AE): £3,000 current year + £3,000 brought forward from prior year = £6,000 total available. Gift to son £3,000 — covered by current year AE. Small gifts exemption: each gift of £250 or less to any one person — the 10 gifts of £250 = £2,500 are each covered by the £250 small gifts exemption. Marriage exemption for nephew: gift to nephew = £1,000 exempt (nephew exemption limit). But £2,000 − £1,000 = £1,000 excess. Total potential PETs before AE: son £3,000 (AE current year), nephew £1,000 excess. AE remaining after son = £6,000 − £3,000 = £3,000 available. Apply remaining AE to nephew excess: £1,000 − £1,000 = £0. Total PETs = £0. The 10 × £250 gifts are all covered by the small gifts exemption. £5,000 ignores every exemption on the son's and nephew's gifts, £2,000 ignores the exemptions on the nephew's gift, and £500 does not follow from the figures.

Answer: D. For normal expenditure out of income exemption, three conditions must all be met: (1) the gift must form part of a normal (regular/habitual) pattern of giving; (2) it must be made out of income (not capital); (3) after making the gift, the donor must have sufficient income remaining to maintain their normal standard of living. Option A is wrong — this exemption applies to any recipient, not just spouses. Option B is wrong — there is no minimum survival period for this exemption. Option C is wrong — there is no monetary limit.

Answer: D. Taper relief applies where a PET becomes chargeable within 7 years of the donor's death. For 2019 to 2025/26 — approximately 6 years before death (between 6 and 7 years) — taper relief of 80% applies. IHT is charged at 20% of the full rate (40% × 20% = 8%). Taxable amount = £400,000 − NRB £325,000 = £75,000. IHT before taper = £75,000 × 40% = £30,000. After 80% taper = £30,000 × 20% = £6,000. Option A is wrong — the PET is within 7 years. Option B (60%) applies to 5−6 years. Option C (40%) applies to 4−5 years.

Answer: B. IHT on a death estate is due 6 months after the end of the month in which the death occurs. For example, if death occurs on 15 March 2026, IHT is due by 30 September 2026 (6 months after the end of March 2026). Option A (31 January) is an income tax self-assessment deadline, not IHT. Option C — IHT does not arise on the date of death. Option D (12 months) is too long.

Answer: C. CLT: chargeable amount = £400,000 − NRB £325,000 = £75,000. Where the donor pays the IHT, the lifetime rate of 20% applies to the chargeable amount (no grossing up needed). IHT = £75,000 × 20% = £15,000. Option A (£30,000) applies 20% to £150,000 — wrong. Option B (£75,000) is the chargeable amount, not the tax. Option D (£60,000) applies 40% death rate to the whole CLT.

Answer: A. IHT is charged on the diminution in value of the donor's estate — the fall in the value of what the donor holds. Before the gift: 60% holding worth £600,000. After the gift: 40% holding worth £320,000. Diminution = £600,000 − £320,000 = £280,000. This is the transfer of value for IHT, even though the donee only receives shares worth £120,000 (the 20% minority). This difference arises because majority control commands a premium. Option B (£120,000) is the value of the gifted 20% minority. Options C and D are incorrect.

Answer: D. A buy-to-let property forms part of the deceased's estate and is included at its open market value. Option A — pension funds held in trust do not form part of the estate for IHT (they pass outside the estate). Option B — assets passing by survivorship in a joint tenancy transfer to the co-owner, though they may still be part of the estate if passing to a non-exempt beneficiary; however, spouse transfers are exempt. Option C — life insurance written in trust passes directly to beneficiaries and is outside the estate.

Answer: B. A parent can give up to £5,000 on the occasion of a child's marriage free of IHT (the marriage exemption). Thomas's gift is £7,000; £5,000 is covered by the marriage exemption, leaving £2,000 as a potential PET (further covered by the annual exemption if available). Option A incorrectly treats the full gift as exempt. Option C applies the grandparent limit. Option D applies the anyone else limit.

Answer: D. Eva's gift was made in June 2018 and she dies in August 2025. The period is 7 years and 2 months — more than 7 years. A PET made more than 7 years before death is fully exempt — it falls completely outside the IHT accumulation window. No IHT arises on this gift. Options A and B treat the gift as within the 7-year window. Option C is wrong — even if the gift were within 7 years, it would be covered by the NRB, but here it is fully exempt regardless.

Answer: B. The annual exemption is £3,000 per year. Unused annual exemption from the previous year can be carried forward for ONE year only. Harriet unused 2024-25 exemption (£3,000) is carried forward to 2025-26. Total available = £3,000 (2025-26) + £3,000 (carried from 2024-25) = £6,000. The remaining £1,500 (£7,500 − £6,000) is a PET. Option A assumes the full gift is exempt. Option C only uses the current year exemption. Option D incorrectly suggests partial carry forward.