R05 Inheritance tax rules and exemptions: free practice questions

1. Question 1 of 5

   Edith, a widow with no transferable nil-rate band, dies in 2026/27 leaving an estate of £480,000 to her nephew. She had no residence and made no lifetime gifts. What is the IHT liability?

   Option A: £62,000Option B: £0Option C: £192,000Option D: £122,000

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   The answer is A: £62,000

   The taxable amount is £480,000 − £325,000 nil-rate band = £155,000. At 40%, the tax is £62,000. The residence nil-rate band is not available because there is no home passing to direct descendants.

   Why the other options are wrong

   B

   The estate exceeds the nil-rate band, so IHT is due.

   C

   £192,000 charges 40% on the whole estate, ignoring the nil-rate band.

   D

   £122,000 deducts the residence band instead of the £325,000 nil-rate band.

2. Question 2 of 5

   A single person dies with a net estate of £2,150,000, including a home left to their children. How much residence nil-rate band is available?

   Option A: £25,000Option B: £0Option C: £175,000Option D: £100,000

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   The answer is D: £100,000

   The residence nil-rate band is withdrawn at £1 for every £2 of net estate over £2 million. The excess is £150,000, so £75,000 is withdrawn, leaving £175,000 − £75,000 = £100,000.

   Why the other options are wrong

   A

   £25,000 withdraws £150,000; the taper is £1 for every £2 over £2 million, so £75,000 is withdrawn.

   B

   The band isn't fully lost until the estate reaches £2,350,000.

   C

   The full £175,000 is only available where the estate is £2 million or less.

3. Question 3 of 5

   How much can a grandparent give to a grandchild as an exempt gift on the grandchild's marriage?

   Option A: £5,000Option B: £1,000Option C: £3,000Option D: £2,500

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   The answer is D: £2,500

   Wedding and civil partnership gifts are exempt up to £5,000 from each parent, £2,500 from each grandparent or great-grandparent or from a party to the marriage, and £1,000 from anyone else.

   Why the other options are wrong

   A

   £5,000 is the limit for a parent.

   B

   £1,000 is the limit for anyone who isn't a parent, grandparent or party to the marriage.

   C

   £3,000 is the annual exemption, a separate exemption.

4. Question 4 of 5

   Harriet made no gifts last tax year. This tax year she gives £6,000 to her son and makes no other gifts. How much of the gift is exempt under the annual exemption?

   Option A: £0Option B: £3,250Option C: £3,000Option D: £6,000

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   The answer is D: £6,000

   Once the current year's £3,000 exemption is used, any unused exemption from the previous tax year can be brought forward. That gives £6,000 in total.

   Why the other options are wrong

   A

   Annual exemptions are available, so some of the gift is exempt.

   B

   £3,250 wrongly adds the small gifts exemption, which can't be combined with the annual exemption.

   C

   £3,000 is only this year's exemption; last year's unused £3,000 can be brought forward.

5. Question 5 of 5

   Jasmine transfers £365,000, after exemptions, into a discretionary trust. She has made no other chargeable transfers, and the trustees agree to pay any tax. How much lifetime IHT is due?

   Option A: £16,000Option B: £10,000Option C: £8,000Option D: £0

   Show answer

   The answer is C: £8,000

   The excess over the nil-rate band is £40,000. At the 20% lifetime rate paid by the trustees, the tax is £8,000. If Jasmine paid it herself, grossing up would give an effective rate of 25%.

   Why the other options are wrong

   A

   £16,000 uses the 40% death rate; lifetime transfers into trust are charged at 20%.

   B

   £10,000 reflects grossing up, which applies if Jasmine pays; here the trustees pay, so it's 20% of £40,000.

   D

   £365,000 is above the £325,000 nil-rate band, so tax is due on the £40,000 excess.

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