Tx notes fa22 Final

£
£
Chargeable estate
850,000
IHT liability: Residence
500,000 (175,000 + 325,000) at nil % 
0
350,000 at 40%
140,000
140,000

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179
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7. Approach to Exam Questions 
In an examination question, the following approach should be adopted: 
1.
Compute the chargeable transfer for each lifetime gift 
2.
If any CLT’s have been made, the computation for Lifetime Transfers must be prepared. To 
compute any tax payable, it must be ascertained who paid the tax, donor or donee, to 
determine the tax rate to apply above the nil rate band, 20% or 25%.
3.
On the death of the taxpayer any lifetime transfers, CLT’s or PET’s made within the 7 years of 
death are now included in the computation for Lifetime Transfers Chargeable On Death 
4.
The Chargeable Estate is now established, and the tax thereon computed.
It may also be required to state by whom and by when the IHT should be paid.
 
Example 4 
Joe Kerr died on April 1 2023, leaving £250,000 to his wife and the remainder of his estate to his son. 
At the date of his death Joe owned the following assets:
(1)
His principal private main residence valued at £300,000 upon which the outstanding repayment 
mortgage at the date of death was £80,000
(2)
A holiday home valued at £140,000
(3)
Bank and Building Society Deposits amounting to £230,000
(4)
ISA’s with a market value of £50,000
(5)
12,000 Shares in Joe Ltd valued at £20 per share
(6)
A life assurance policy with an open market value at April 1 2023 of £125,000 from which 
proceeds of £140,000 were received following Joe’s death.
Joe had outstanding credit card bills of £6,000 at the date of his death and had also verbally 
promised to pay the medical expenses of £1,000 of a friend. Funeral expenses amounted to £6,000.
During his lifetime he had made the following lifetime transfers:
(1)
On 20
November 2016 a cash gift of £40,000 to his son on the occasion of his wedding.
(2)
On 15 July 2017 he transferred £405,000 into a trust and paid the IHT due thereon
(3)
On 8 December 2021 he gave 4,000 shares in Joe Ltd to his son. Prior to the gift Joe owned 
16,000 of the 20,000 shares in Joe Ltd. Share valuations agreed with HMRC at this date were 
as follows:
20% shareholding
-
£8 per share
40% ,,
-
£12 ,,
60% ,,
-
£18 ,,
80% ,,
-
£25 ,,
The nil rate band from the tax year 2016/17 has always been £325,000