R03 Estate and IHT planning: free practice questions

1. Question 1 of 5

   A will wasn't drafted in the most IHT-efficient way. What may the beneficiaries be able to do?

   Option A: Nothing, as a will can never be changed after deathOption B: Ask HMRC to apply whatever terms minimise the IHTOption C: Enter a deed of variation within two years of the deathOption D: Claim a refund of the IHT within seven years

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   The answer is C: Enter a deed of variation within two years of the death

   Beneficiaries may vary the will by deed within two years of the death, subject to conditions. Wills should be reviewed at least every two years and after changes in circumstances or law.

   Why the other options are wrong

   A

   A deed of variation can redirect the estate.

   B

   HMRC can't simply rewrite a will.

   D

   There's no such refund route.

2. Question 2 of 5

   Why might leaving business relief assets to a spouse be poor planning?

   Option A: Business relief is withdrawn on any transfer to a spouseOption B: The spouse must pay CGT on the transferOption C: It triggers a gift with reservationOption D: The spouse exemption makes the relief unnecessary, so it may be wasted

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   The answer is D: The spouse exemption makes the relief unnecessary, so it may be wasted

   Business and agricultural relief are wasted on an exempt spouse transfer. It's often better to leave such assets to the next generation, using the relief, with other assets going to the spouse.

   Why the other options are wrong

   A

   It isn't withdrawn; it's simply not needed because of the exemption.

   B

   Transfers between spouses are no gain, no loss.

   C

   That's not the problem.

3. Question 3 of 5

   Which of these are advantages of using trusts in IHT planning? 1. The settlor can be a trustee and keep some control. 2. They can protect wealth from divorce or creditors. 3. They are confidential, unlike wills. 4. They don't need to be registered with HMRC.

   Option A: 1, 2, 3 and 4Option B: 1 and 2 onlyOption C: 2, 3 and 4 onlyOption D: 1, 2 and 3 only

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   The answer is D: 1, 2 and 3 only

   Trusts provide cash during probate delays, let the settlor keep control as trustee, protect wealth, defer decisions, give certainty and stay confidential. Most must be registered with HMRC within 90 days.

   Why the other options are wrong

   A

   Most trusts must be registered with HMRC.

   B

   Confidentiality is also an advantage.

   C

   Statement 1 is an advantage; statement 4 is untrue.

4. Question 4 of 5

   A long-term resident wants to leave a lot to his non-long-term-resident wife, who doesn't want to elect. What could he do instead?

   Option A: Give the assets to a discretionary trust for herOption B: Make lifetime gifts as PETs, insuring the IHT over seven yearsOption C: Leave everything to her, as the exemption is unlimitedOption D: Nothing can be done

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   The answer is B: Make lifetime gifts as PETs, insuring the IHT over seven years

   Outright lifetime gifts to the spouse above the £325,000 cap are PETs, exempt if he survives seven years, with term insurance covering the risk. Alternatively she could elect to be long-term resident.

   Why the other options are wrong

   A

   That would be a CLT, possibly with an entry charge.

   C

   The exemption is capped at £325,000 for a non-long-term-resident spouse.

   D

   PETs and insurance are an option.

5. Question 5 of 5

   A husband gives his family company shares to his wife, who gives them to the children a year later and dies within seven years. Why could business relief fail on her gift?

   Option A: She hadn't owned the shares for two years before giving themOption B: The shares became quoted shares when they were transferredOption C: The children sold the sharesOption D: Business relief is never given on family gifts

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   The answer is A: She hadn't owned the shares for two years before giving them

   Business relief needs two years' ownership by the transferor. Passing shares via a spouse shortly before a gift to children can mean the spouse fails the test.

   Why the other options are wrong

   B

   The issue is the ownership period.

   C

   The problem arises on her gift.

   D

   Relief is available, subject to conditions.

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