ACCA TX ^UK Syllabus D. Inheritance Tax - Inheritance tax in the exam - Past Papers ^{1 / 1}

(b) Marcus died on 10 March 2015. He had made the following gifts during his lifetime:

(1) On 14 January 2006, Marcus made a chargeable lifetime transfer of £290,000 to a trust. The trustees paid the lifetime inheritance tax of £3,000 which arose in respect of this gift.

(2) On 3 February 2012, Marcus made a chargeable lifetime transfer of £420,000 to another trust. In addition to the gift, Marcus paid the related lifetime inheritance tax of £96,250 on this gift.

(3) On 17 March 2012, Marcus made a gift (a potentially exempt transfer) of 30,000 £1 ordinary shares in Scarum Ltd, an unquoted investment company, to his daughter.

Before the transfer, Marcus owned all of Scarum Ltd’s issued share capital of 100,000 £1 ordinary shares.

On 17 March 2012, Scarum Ltd’s shares were worth £5 each for a holding of 30%, £9 each for a holding of 70%, and £12 each for a holding of 100%.

The nil rate band for the tax year 2005–06 is £275,000, and for the tax year 2011–12 it is £325,000.
Under the terms of his will, Marcus left his entire estate to his wife.

Required:
Calculate the inheritance tax which will be payable as a result of Marcus’s death.

Note: You should ignore the inheritance tax annual exemption. (7 marks)

You should assume that today’s date is 1 January 2014.
Kendra Older, aged 93, is unfortunately in poor health with just a few months left to live. She has made the following gifts during her lifetime:

(1) On 20 June 2006, Kendra made a cash gift of £146,000 to a trust. No inheritance tax arose in respect of this gift.

(2) On 5 October 2012, Kendra made a cash gift of £253,000 to her children.

Kendra owns the following assets:
(1) A property valued at £970,000. The property is no longer occupied by Kendra, and if it were disposed of during the tax year 2013–14 the disposal would result in a chargeable gain of £174,000.

(2) Building society deposits of £387,000.

(3) Investments in individual savings accounts (ISAs) valued at £39,000 and savings certificates from NS&I (National Savings and Investments) valued at £17,000.

(4) A life assurance policy on her own life. The policy has an open market value of £210,000, and proceeds of £225,000 will be received following Kendra’s death.

None of the above valuations are expected to change in the near future. The cost of Kendra’s funeral will be £14,000.

Under the terms of her will, Kendra has left her entire estate to her children.

The nil rate band of Kendra’s husband was fully utilised when he died ten years ago.

The nil rate band for the tax year 2006–07 is £285,000, and for the tax year 2012–13 it is £325,000.

For the tax year 2013–14, Kendra will pay income tax at the higher rate.

Required:
(a) Calculate the inheritance tax which would be payable if Kendra Older were to die on 31 March 2014. (10 marks)

You should assume that today’s date is 1 January 2014.
Kendra Older, aged 93, is unfortunately in poor health with just a few months left to live. She has made the following gifts during her lifetime:

(1) On 20 June 2006, Kendra made a cash gift of £146,000 to a trust. No inheritance tax arose in respect of this gift.

(2) On 5 October 2012, Kendra made a cash gift of £253,000 to her children.

Kendra owns the following assets:
(1) A property valued at £970,000. The property is no longer occupied by Kendra, and if it were disposed of during the tax year 2013–14 the disposal would result in a chargeable gain of £174,000.

(2) Building society deposits of £387,000.

(3) Investments in individual savings accounts (ISAs) valued at £39,000 and savings certificates from NS&I (National Savings and Investments) valued at £17,000.

(4) A life assurance policy on her own life. The policy has an open market value of £210,000, and proceeds of £225,000 will be received following Kendra’s death.

None of the above valuations are expected to change in the near future. The cost of Kendra’s funeral will be £14,000.

Under the terms of her will, Kendra has left her entire estate to her children.

The nil rate band of Kendra’s husband was fully utilised when he died ten years ago.

The nil rate band for the tax year 2006–07 is £285,000, and for the tax year 2012–13 it is £325,000.

For the tax year 2013–14, Kendra will pay income tax at the higher rate.

Required:
(b) Advise Kendra Older why it would not be beneficial to make an immediate lifetime gift of the property valued at £970,000 to her children.

Notes:
1. Your answer should take account of both the capital gains tax and the inheritance tax implications of making the gift.

2. For this part of the question you should ignore the capital gains tax annual exempt amount and inheritance tax annual exemptions. (3 marks)

You should assume that today’s date is 1 January 2014.
Kendra Older, aged 93, is unfortunately in poor health with just a few months left to live. She has made the following gifts during her lifetime:

(1) On 20 June 2006, Kendra made a cash gift of £146,000 to a trust. No inheritance tax arose in respect of this gift.

(2) On 5 October 2012, Kendra made a cash gift of £253,000 to her children.

Kendra owns the following assets:
(1) A property valued at £970,000. The property is no longer occupied by Kendra, and if it were disposed of during the tax year 2013–14 the disposal would result in a chargeable gain of £174,000.

(2) Building society deposits of £387,000.

(3) Investments in individual savings accounts (ISAs) valued at £39,000 and savings certificates from NS&I (National Savings and Investments) valued at £17,000.

(4) A life assurance policy on her own life. The policy has an open market value of £210,000, and proceeds of £225,000 will be received following Kendra’s death.

None of the above valuations are expected to change in the near future. The cost of Kendra’s funeral will be £14,000.

Under the terms of her will, Kendra has left her entire estate to her children.

The nil rate band of Kendra’s husband was fully utilised when he died ten years ago.

The nil rate band for the tax year 2006–07 is £285,000, and for the tax year 2012–13 it is £325,000.

For the tax year 2013–14, Kendra will pay income tax at the higher rate.

Required:
(c) Advise Kendra Older why it might be beneficial for inheritance tax purposes to change the terms of her will so that part of her estate was instead left to her grandchildren rather than her children. (2 marks)