Hi All,
Please could you help me with q11 of the paper F6 UK Sep 16?
Cora made a cash gift of £300,000 to her niece on 30 April 2010.
She then made a cash gift of £500,000 to her nephew on 31 May 2011.
Both of these amounts are stated after deducting available exemptions.
Cora subsequently died on 31 October 2015.
What amount of inheritance tax was payable as a result of Cora’s death in respect of the cash gift of £500,000 to her nephew?
A £190,000
B £110,000
C £114,000
D £105,000
If it is just relating to the £500k to her nephew, then I would say (£500k @40%) less 40% for the 4-5 year diminishment.
Correct answer:
190,000 ((500,000 – 25,000 (325,000 – 300,000)) at 40%) less 40% (4 – 5 years) = £114,000
Where does the £325k come from?
Thank you!
ACCA Forums
TXinheritance tax - F6 UK Sep 16
£325,000 is the inheritance tax allowance. Any Potentially Exempt Transfers are deducted from this first.
So she starts off with an allowance of £325,000.
The gift to the niece takes up £300,000 of this, leaving her with £25,000 in her allowance.
She then makes a gift of £500,000 to the nephew. £25,000 of this is tax free, £475,000 is taxable.
£475,000 x 40% (tax rate) = £190,000
£190,000 - 40% x £190,000 (allowance for PET 4-5 years old) =£114,000
£325,000 is the yearly nil rate band (tax free)
OK I understand now, thank you!
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