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dear sir i was solving this question after completing all the questions of kit and the question is also present in dec 2011 past paper of f6 the question is
On 15 January 2011 Blu Reddy made a gift of 200,000 £1 ordinary shares in Purple Ltd, an unquoted
investment company, to a trust. Blu paid the inheritance tax arising from this gift.
Before the transfer Blu owned 300,000 shares out of Purple Ltd’s issued share capital of 500,000 £1 ordinary
shares. On 15 January 2011 Purple Ltd’s shares were worth £2 each for a holding of 20%, £3 each for a holding
of 40%, and £4 each for a holding of 60%.
Blu has not made any previous gifts.
Required:
Calculate the inheritance tax that will be payable as a result of Blu Reddy’s gift to the trust, and the
additional inheritance tax that would be payable if Blu were to die on 31 May 2015.
Note: You should ignore annual exemptions, and should assume that the nil rate band for the tax year
2010–11 remains unchanged.and the solutions is
Blu Reddy – Inheritance tax computation
£
Lifetime transfer 15 January 2011
Value of shares held before the transfer
300,000 x £4 1,200,000
Value of shares held after the transfer
100,000 x £2 (200,000)
––––––––––
Net chargeable transfer 1,000,000
IHT liability 325,000 at nil% 0
675,000 x 20/80 168,750
––––––––––
Gross chargeable transfer 1,168,750
––––––––––
Additional liability arising on death 31 May 2015
Gross chargeable transfer 1,168,750
––––––––––
IHT liability 325,000 at nil% 0
843,750 at 40% 337,500
Taper relief reduction – 40% (135,000)
––––––––––
202,500
IHT already paid (168,750)
––––––––––
Additional liability 33,750
––––––––––my question arises after Gross chargeable transfer of 1,168,750 that how he could use the Nil Rate Band of 325000 when he has already made a gift of shares within 7 years of time period in which he died cause in every question that i solved i always practiced and saw that we subtract the previous Gross Chargeable Transfer that falls in 7 years of death then why he did not subtract that from the NRB of the death year? please clear it to me
Ya even I got confused….how can he use NRB again….he has already exaushted the NRB.
Full NRB is available at death as Blu did not make any transfer before 15 January 2011. The way haymd1 treated may be right for some questions but it is not the correct way. For example if Blu made a gross transfer of 200000 on 31May 2006, the NRB available at death wil be 125000 (325000-200000) not because of the transfer of 200000 was made within the previous seven years before Blu died but because of the transfer of 200000 was made within the previous seven years before 15 january 2011.
NRB available at death is not determined by the transfers made within the previous seven years before the donor died. It is determined by the transfers made within the previous seven years before the transfers which were made within the previous seven years before the donor died.
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