R03 IHT principles, exemptions and lifetime transfers: free practice questions

1. Question 1 of 5

   What are the IHT nil rate band and the main death rate for 2026/27?

   Option A: £325,000, with 20% on the excessOption B: £500,000, with 40% on the excessOption C: £175,000, with 40% on the excessOption D: £325,000, with 40% on the excess

   Show answer

   The answer is D: £325,000, with 40% on the excess

   The nil rate band is £325,000, frozen until 5 April 2031. Death transfers above it are taxed at 40% (36% where at least 10% of the net estate goes to charity); chargeable lifetime transfers at 20%.

   Why the other options are wrong

   A

   20% is the lifetime rate on chargeable lifetime transfers.

   B

   £500,000 combines the nil rate band and the RNRB, which only applies in some estates.

   C

   £175,000 is the residence nil rate band.

2. Question 2 of 5

   Dan dies leaving £600,000, including a home left to his children. He made chargeable transfers of £100,000 in the seven years before death. What IHT is due on the estate?

   Option A: £80,000Option B: £40,000Option C: £150,000Option D: £110,000

   Show answer

   The answer is A: £80,000

   Remaining nil rate band = £325,000 − £100,000 = £225,000. Tax = (£600,000 − £175,000 − £225,000) × 40% = £80,000.

   Why the other options are wrong

   B

   The earlier transfers use up £100,000 of the nil rate band.

   C

   The RNRB of £175,000 still applies to the estate.

   D

   That ignores both the earlier transfers and the RNRB.

3. Question 3 of 5

   Which statement about the IHT small gifts exemption is correct?

   Option A: It can be added to the annual exemption to cover a single gift of £3,250Option B: It applies only to gifts to family membersOption C: It covers gifts into trust of up to £250Option D: Outright gifts of up to £250 per recipient per tax year are exempt

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   The answer is D: Outright gifts of up to £250 per recipient per tax year are exempt

   Any number of outright gifts of up to £250 per recipient per tax year are exempt. The exemption can't cover part of a larger gift and doesn't apply to gifts into trust.

   Why the other options are wrong

   A

   It can't be used as part of a larger gift.

   B

   It applies to any number of recipients.

   C

   Gifts must be outright, not into trust.

4. Question 4 of 5

   Ed made a PET of £400,000 (after exemptions), his only gift, and died four and a half years later. What IHT is due on the PET?

   Option A: £12,000Option B: £30,000Option C: £24,000Option D: £18,000

   Show answer

   The answer is D: £18,000

   Tax before taper = (£400,000 − £325,000) × 40% = £30,000. Death between four and five years after the gift reduces it by 40%: £30,000 × 60% = £18,000.

   Why the other options are wrong

   A

   Four to five years gives a 40% reduction, not 60%.

   B

   Taper relief applies after three years.

   C

   Four to five years gives a 40% reduction, not 20%.

5. Question 5 of 5

   Which of the following is deducted in valuing a person's estate on death?

   Option A: Reasonable funeral expenses and a headstoneOption B: The donor's annual exemption for the year of deathOption C: Gifts made more than seven years before deathOption D: A life policy written in trust for children

   Show answer

   The answer is A: Reasonable funeral expenses and a headstone

   The estate is the gross value of assets less debts at death, with a deduction for reasonable funeral expenses. Changes on death, such as life policy proceeds paid to the estate, are included.

   Why the other options are wrong

   B

   The annual exemption applies only to lifetime gifts.

   C

   These aren't in the estate to begin with.

   D

   A policy in trust isn't part of the estate, so there's nothing to deduct.

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