Inheritance Tax Liability Calculator

Inheritance Tax Liability Calculation for Bill's Estate

Prev Question Next Question

Question

Bill, a single man, having made full use of his annual gift allowances, made a potentially exempt transfer of £100,000 four and a half years before his death. He has made no other gifts. His residual estate is now valued at £500,000. The Inheritance Tax liability at death is:

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

D

Based on the given information, Bill has made a potentially exempt transfer of £100,000 four and a half years before his death and has not made any other gifts.

Potentially exempt transfers (PETs) are gifts made by an individual that become exempt from inheritance tax (IHT) if the individual survives for at least seven years after making the gift. If the individual dies within seven years of making the PET, the value of the PET is added to the individual's estate for IHT purposes. In this case, since Bill made the PET four and a half years before his death, the value of the PET will be included in his estate for IHT purposes.

Bill's estate is valued at £500,000. To determine his IHT liability, we need to calculate the taxable value of his estate. This is done by adding back the value of the PET to the value of his estate:

Taxable value of estate = £500,000 + £100,000 = £600,000

In the UK, IHT is charged at a rate of 40% on the taxable value of an estate above the nil-rate band, which is currently set at £325,000.

So, Bill's IHT liability can be calculated as follows:

Taxable value of estate = £600,000 Nil-rate band = £325,000 Taxable amount = £600,000 - £325,000 = £275,000 IHT liability = 40% x £275,000 = £110,000

Therefore, the answer is (D) £110,000.

Prev Question Next Question