The Chartered Tax Adviser Examination

Transcription

1 Candidate Number You must tick the box below if you have answered this Module. The Chartered Tax Adviser Examination November 2014 AWARENESS MODULE B INHERITANCE TAX, TRUSTS & ESTATES You should only answer this module if you have not sat/do not intend to sit the Inheritance Tax, Trusts & Estates Advisory paper. Each question carries 5 marks. You should answer all 12 questions. You should answer questions in brief bullet points and/or summary computations where appropriate. You must answer questions in the spaces provided. You may not need all the space provided. You should make all calculations to the nearest month and pound unless stated otherwise. Unless otherwise indicated by the provision of additional table information, you may assume that 2013/14 rates and allowances continue to apply for 2014/15 and future years. Candidates referring to actual or pending rates and allowances for 2014/15 and future years will not be penalised.

2 1. Jennifer gave her house to her son David on 1 January She continued to live alone in the house until her death on 31 March She did not pay rent to David. Jennifer had made no other lifetime gifts. She left her remaining assets to David in her will. Briefly explain the Inheritance Tax charge on Jennifer s death, in relation to the house. Page 2 of 25

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4 2. Peter died on 31 December 2013, owning the following assets: 1) Farmland in South West England which has been farmed by a tenant farmer since purchase. 2) 100% of the ordinary shares in an investment company which rents out commercial property. 3) An interest in a marketing partnership. The partnership agreement obliged the other partners to buy Peter s interest on his death, and his executors were obliged to sell to the other partners. Peter had owned all assets listed for at least 10 years at the time of his death. Briefly explain whether these assets qualify for Agricultural Property Relief and/or Business Property Relief on Peter s death. Page 4 of 25

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6 3. On 1 November 2008, Liza created a discretionary trust for her grandchildren, gifting cash of 900,000. The trustees paid the Inheritance Tax due of 116,400. Liza had made no previous lifetime transfers. On 1 December 2013, the trustees made a cash distribution of 100,000 to a beneficiary. The beneficiary paid the Inheritance Tax on the distribution. Calculate the Inheritance Tax payable by the beneficiary on the distribution in December Page 6 of 25

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8 4. The trustees of the Connet discretionary trust sold three acres of land on 31 March 2014 to a third party for 100,000. The trustees incurred legal fees on the sale of 1,500. The land was part of a plot of five acres which had been bought by the trustees on 2 January 2012 for 40,000. The remaining two acres were worth 55,000 in total on 31 March There were no other capital disposals by the trustees in 2013/14. The Connet discretionary trust was the only trust created by its settlor. Calculate the Capital Gains Tax payable on the sale of the land in March Page 8 of 25

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10 5. Amelia gave 10,000 ordinary shares in Mukimap plc, an investment company, to her nephew John on 15 July On that date the shares were quoted at and had recorded bargains at 2.71, 2.74 and Amelia died on 30 September John had sold the shares in August 2013 to a third party for 20,000. Amelia had made one previous lifetime gift of cash of 500,000 in December Calculate the value of the Mukimap plc shares on which Inheritance Tax is payable on Amelia s death, showing the amounts of any exemptions or reliefs available. Page 10 of 25

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12 6. The Birch interest in possession trust received rental income of 5,750 and dividends of 1,800 (net), in the year 2013/14. During the year the trustees incurred 175 in trust management expenses properly met from income. Calculate the trust s net distributable income. Page 12 of 25

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14 7. During 2013/14, the following events took place involving trusts. The trusts are not connected in any way, and are not settlor interested. Type of trust Event Trust A Bare trust Trust assets were transferred to the beneficiary. Trust B Trust for a disabled person The disabled person died. Trust C Trust for a bereaved minor Trust assets were used to pay the minor s school fees. Trust D Discretionary trust Trust assets were sold to a third party for market value. Trust E Immediate post death interest trust Assets were transferred on the death of Mr E under the terms of his will, to create the trust. The beneficiary of the trust (the life tenant) is Mr E s wife, Mrs E who is UK domiciled. Briefly explain whether an Inheritance Tax charge arose on each of these events. Page 14 of 25

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16 8. On 1 July 2012, Jack made a gift of cash to a discretionary trust totalling 494,000 after annual exemptions. Jack paid the Inheritance Tax due. Jack had made one previous lifetime gift of cash to his friend Arthur on 1 September The gift amounted to 100,000 after annual exemptions. Jack died on 1 March Calculate the Inheritance Tax due in respect of the gift made in July 2012, as a result of Jack s death. Page 16 of 25

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18 9. Harriet, who was UK domiciled, died on 1 January Her estate comprised a house worth 700,000 and cash and chattels totalling 1.5 million. In her will, she left 350,000 in cash to her husband Fred (who is non-uk domiciled), 150,000 to a UK registered charity and the remainder of her estate to her sister Sarah (who is UK domiciled). Harriet had made no lifetime transfers. No elections regarding Fred s domicile status have been, or will be, made. Calculate the Inheritance Tax payable on Harriet s death, showing clearly all your workings. Page 18 of 25

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20 10. William gifted 1,000 shares in MNY Ltd, an unquoted investment company, to his son Harry. Prior to the gift, William had owned 6,000 shares in MNY Ltd, and William s wife owned the remaining 4,000 shares in issue. The values of various shareholdings at the date of the gift were: Shareholding % Value ( ) , , , , , ,000 Calculate the value of this transfer for Inheritance Tax purposes, assessing the alternatives in relation to related property. Ignore any exemptions. Page 20 of 25

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22 11. Charlie died on 12 February 2009 leaving a chargeable estate of 487,000. Charlie had made no previous lifetime transfers. Charlie left a painting worth 40,000 to his nephew Roger as a tax-free legacy, and the remainder of his estate to his daughter. Roger died on 18 December 2013, leaving his estate to his son. Calculate the quick succession relief available on Roger s death. Page 22 of 25

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24 12. Alfred died on 31 March He had made the following payments and gifts during the year 2013/14. 1) A gift of 6,000 made on 6 April 2013 to his niece on the occasion of her civil partnership. 2) School fees paid monthly by direct debit (on the first day of each month), totalling 22,000, for his son, who turned 15 years old during the year. Alfred had sold some antique furniture for market value to help make these payments. 3) In December 2013, a donation of 10,000 to a political party which has eighty two local councillors in the UK and five elected members of Parliament. 4) Gift of a car worth 10,000 to his nephew on his birthday in March In 2012/13, Alfred had made a gross chargeable transfer of 800,000. Identify, with brief explanations, any exemptions or exceptions from Inheritance Tax applying to the 2013/14 transactions. Page 24 of 25

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