Inheritance Tax (IHT)

• Topic 01

  Inheritance Tax (IHT)

  34 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. What condition must be met for the RNRB to be available?

   • A
     The deceased must have owned a residential property for at least 10 years before death
   • B
     The residential property must be left outright to a surviving spouse, not held in trust
   • C
     A qualifying residential property (or assets of equivalent value under the downsizing rules) must be left to direct descendants (children, stepchildren, grandchildren, etc.)
     Correct answer
   • D
     The estate must be below £1,000,000 to qualify for the RNRB; larger estates receive no relief
   Explanation

   The RNRB is available when: (1) the deceased owned a residential property (or sold one after 8 July 2015 and left equivalent value assets under the downsizing rules); and (2) the property (or equivalent assets) is left to direct descendants, including children, stepchildren, adopted children, foster children, and their lineal descendants. The RNRB is tapered at £1 for every £2 of net estate above £2,000,000, gradually reducing to nil above £2,350,000 for a single individual.

2. A deceased left an estate of £800,000. They left £100,000 to charity and the remainder to their children. Their full NRB (£325,000) and full RNRB (£175,000) are available. Calculate the IHT payable.

   • A
     £80,000 — standard 40% rate; the charitable legacy does not trigger the reduced rate
   • B
     £72,000 using 36% but calculated on the full estate before charity deduction
   • C
     £120,000 — no thresholds applied; full estate £700,000 minus NRB £325,000 = £375,000 at 40%
   • D
     Net chargeable estate = £800,000 minus £100,000 charity = £700,000. Available thresholds = £325,000 + £175,000 = £500,000. Taxable estate = £200,000 at 40% = £80,000. Check if charitable legacy ≥ 10% of net estate for 36% rate: 10% of £700,000 = £70,000; charity left £100,000 which is ≥ 10%, so 36% rate applies. Revised IHT = £200,000 × 36% = £72,000
     Correct answer
   Explanation

   The charitable legacy of £100,000 is deducted first: net chargeable estate = £700,000. Available NRB + RNRB = £500,000. Taxable amount = £200,000. Qualifying charitable legacy test: 10% of net estate (£700,000) = £70,000. Since £100,000 charity bequest > £70,000 (i.e. ≥ 10%), the reduced 36% rate applies to the taxable estate. IHT = £200,000 × 36% = £72,000 (saving £8,000 compared with standard 40% = £80,000).

3. What is the nil rate band (NRB) for IHT in 2025/26?

   • A
     £300,000
   • B
     £400,000
   • C
     £325,000
     Correct answer
   • D
     £500,000
   Explanation

   The nil rate band for IHT is £325,000 in 2025/26. This is the threshold below which an estate (or a lifetime gift in the relevant 7-year cumulation period) is not subject to IHT at the standard 40% rate. The NRB has been frozen at £325,000 since 2009 and is currently scheduled to remain frozen until April 2030. The NRB applies before the residence nil rate band (RNRB) of £175,000, which applies in addition when qualifying conditions are met.