THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots Law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Ted is aged 75 years. He has an Isle of Man domicile of origin and moved to the UK in March 2011
when he married his wife, Muriel. Ted is taxed in the UK on the arising basis.
They now live in Lancashire, but both have kept their previous residences: Muriel, her London flat
for occasional use and Ted, his bungalow on the Isle of Man as a holiday home. Ted has always
been clear that he will return to live in his bungalow on the Isle of Man if Muriel predeceases him.
Neither Muriel nor Ted have any children. Ted has made no gifts over the past seven years.
Ted has a managed US share portfolio worth £4 million, inherited a few years ago from his uncle.
It comprises £3.6 million in quoted shares and £400,000 in a US current account. The shares
provide him with dividend income of approximately £100,000 each year. Currently, a net gain of
£10,000 would be realised if all the shares were sold.
Ted’s sister, Betty is married to John. They have one daughter, Charlotte who is married to Evan.
Charlotte and Evan have three children: David, Freddie and Gordon. All were born on the Isle of
Man and apart from Gordon, continue to live there. Gordon, now 27, has lived and worked in the
UK since university and considers the UK to be his permanent home. He does not intend to return
to the Isle of Man to live and on 1 June 2022, he will marry his UK domiciled fiancée. Gordon
intends to buy a flat in London as their marital home.
Ted wants to settle half of the portfolio shares plus the cash on a discretionary trust for Charlotte
and her issue. He would like the trustees to consider distributing £40,000 of the trust income equally
between the beneficiaries every year. He would also like the trustees to give Gordon an interest
free loan of £400,000 in June 2022 which is to be used for a deposit on the London flat. It is intended
that Gordon will have an 18-month payment holiday and then repay the loan in equal instalments
over 10 years ending on 30 November 2033. Ted would like the trustees to consider forgiving any
amount that Gordon is unable to pay.
Otherwise, Ted is happy for the trustees to deal with the trust funds as they see fit according to the
current and future needs of each of the beneficiaries.
Requirement:
1) Explain the immediate UK tax implications of setting up the trust and how the trust
residence will be determined. (6)
2) Explain the ongoing and future liabilities to UK tax for Ted, the trustees, and the
beneficiaries if the trust is not UK resident, considering the potential for the trustees’
forgiveness of the loan to Gordon, and for future benefits to be provided to the
beneficiaries. Calculations are not required.
(14)
Total (20)
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AT IHTTE
,2. Barbara Warden is 73 years old, UK domiciled and resident and in good health. She has made no
previous lifetime transfers.
Barbara’s husband, Anthony, died UK domiciled on 14 June 2008. Anthony’s Will left a gift to their
son, James equal to the value of the nil rate band at the date of his death. The estate residue was
left on trust to Barbara for life, then absolutely to James. The trust is called The Anthony Warden
Will Trust and Barbara and James are the trustees.
Barbara has been a director and 10% shareholder in AB Ltd for many years. AB Ltd is an unquoted
trading company. She is retiring and had received an offer to sell her shares for £800,000, which
she accepted on 31 October 2021. The base cost of her shares is £10. Barbara has already realised
gains sufficient to use her annual exemption for the current year.
The trustees also accepted an offer to sell their 3% holding in AB Ltd on 31 October 2021 for
£240,000. The trustees’ base cost for the shares is £40,000. The trustees have already realised
gains sufficient to use the trust annual exemption for the current year and have no losses brought
forward. The trust’s remaining assets are as follows:
Assets Probate Value Market Value
£ £
UK commercial property (let) 160,000 360,000
UK residential property (let) 300,000 600,000
Investment portfolio 1,215,000
The investment portfolio has unrealised gains of £455,000.
Barbara wants James to benefit from the trust assets now rather than on her death. However, she
requires an ongoing income. The trustees therefore propose to wind up the trust and appoint to
Barbara:
1) The commercial property from which she will continue to receive an annual rent; and
2) A fixed sum of £40,000 from the net cash proceeds available for distribution from the sale of
the shares in AB Ltd.
James will receive the remaining cash, the residential property, and the investment portfolio.
Requirement:
1) Calculate, with explanations, the Capital Gains Tax arising on the sale of the shares
in AB Ltd by Barbara and the trust, and the net trust proceeds available for
distribution. (5)
2) Explain the tax implications of the proposed winding up of the trust in Barbara’s
lifetime, stating the amounts to be appropriated to each beneficiary, who would be
responsible for payment of any tax arising and how those liable could ensure that the
tax was able to be paid when and if it became due. (15)
Total (20)
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AT IHTTE
, 3. Jonty Feldspar, UK resident and domiciled, died intestate on 18 October 2021 aged 55. He lived
alone, had never been married, had no issue and his parents had predeceased him.
Jonty had made no lifetime transfers. At the time of his death his free estate comprised:
£
Private residence in Yorkshire 400,000
Cash in UK bank account 80,000
Total £480,000
Jonty also had a “free of tax” annuity of £20,000 per annum from the Myles Feldspar Will Trust,
which was created on the death of his brother Myles in 2010. Myles was his only sibling. Debbie,
Myles’ only daughter, is the life tenant of the trust and her children are the remaindermen.
The trust income for 2020/21 was as follows:
£
Property income (net of expenses) 43,000
Bank interest 8,000
UK dividends 15,000
Total £66,000
At the date of Jonty’s death, the trust assets were valued at £1.5 million.
Requirement:
Calculate the Inheritance Tax liability arising on Jonty’s death stating by whom this is
payable, the due date(s) of payment, and how his estate will be distributed.
(10)
Page 4 of 7
AT IHTTE
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots Law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Ted is aged 75 years. He has an Isle of Man domicile of origin and moved to the UK in March 2011
when he married his wife, Muriel. Ted is taxed in the UK on the arising basis.
They now live in Lancashire, but both have kept their previous residences: Muriel, her London flat
for occasional use and Ted, his bungalow on the Isle of Man as a holiday home. Ted has always
been clear that he will return to live in his bungalow on the Isle of Man if Muriel predeceases him.
Neither Muriel nor Ted have any children. Ted has made no gifts over the past seven years.
Ted has a managed US share portfolio worth £4 million, inherited a few years ago from his uncle.
It comprises £3.6 million in quoted shares and £400,000 in a US current account. The shares
provide him with dividend income of approximately £100,000 each year. Currently, a net gain of
£10,000 would be realised if all the shares were sold.
Ted’s sister, Betty is married to John. They have one daughter, Charlotte who is married to Evan.
Charlotte and Evan have three children: David, Freddie and Gordon. All were born on the Isle of
Man and apart from Gordon, continue to live there. Gordon, now 27, has lived and worked in the
UK since university and considers the UK to be his permanent home. He does not intend to return
to the Isle of Man to live and on 1 June 2022, he will marry his UK domiciled fiancée. Gordon
intends to buy a flat in London as their marital home.
Ted wants to settle half of the portfolio shares plus the cash on a discretionary trust for Charlotte
and her issue. He would like the trustees to consider distributing £40,000 of the trust income equally
between the beneficiaries every year. He would also like the trustees to give Gordon an interest
free loan of £400,000 in June 2022 which is to be used for a deposit on the London flat. It is intended
that Gordon will have an 18-month payment holiday and then repay the loan in equal instalments
over 10 years ending on 30 November 2033. Ted would like the trustees to consider forgiving any
amount that Gordon is unable to pay.
Otherwise, Ted is happy for the trustees to deal with the trust funds as they see fit according to the
current and future needs of each of the beneficiaries.
Requirement:
1) Explain the immediate UK tax implications of setting up the trust and how the trust
residence will be determined. (6)
2) Explain the ongoing and future liabilities to UK tax for Ted, the trustees, and the
beneficiaries if the trust is not UK resident, considering the potential for the trustees’
forgiveness of the loan to Gordon, and for future benefits to be provided to the
beneficiaries. Calculations are not required.
(14)
Total (20)
Page 2 of 7
AT IHTTE
,2. Barbara Warden is 73 years old, UK domiciled and resident and in good health. She has made no
previous lifetime transfers.
Barbara’s husband, Anthony, died UK domiciled on 14 June 2008. Anthony’s Will left a gift to their
son, James equal to the value of the nil rate band at the date of his death. The estate residue was
left on trust to Barbara for life, then absolutely to James. The trust is called The Anthony Warden
Will Trust and Barbara and James are the trustees.
Barbara has been a director and 10% shareholder in AB Ltd for many years. AB Ltd is an unquoted
trading company. She is retiring and had received an offer to sell her shares for £800,000, which
she accepted on 31 October 2021. The base cost of her shares is £10. Barbara has already realised
gains sufficient to use her annual exemption for the current year.
The trustees also accepted an offer to sell their 3% holding in AB Ltd on 31 October 2021 for
£240,000. The trustees’ base cost for the shares is £40,000. The trustees have already realised
gains sufficient to use the trust annual exemption for the current year and have no losses brought
forward. The trust’s remaining assets are as follows:
Assets Probate Value Market Value
£ £
UK commercial property (let) 160,000 360,000
UK residential property (let) 300,000 600,000
Investment portfolio 1,215,000
The investment portfolio has unrealised gains of £455,000.
Barbara wants James to benefit from the trust assets now rather than on her death. However, she
requires an ongoing income. The trustees therefore propose to wind up the trust and appoint to
Barbara:
1) The commercial property from which she will continue to receive an annual rent; and
2) A fixed sum of £40,000 from the net cash proceeds available for distribution from the sale of
the shares in AB Ltd.
James will receive the remaining cash, the residential property, and the investment portfolio.
Requirement:
1) Calculate, with explanations, the Capital Gains Tax arising on the sale of the shares
in AB Ltd by Barbara and the trust, and the net trust proceeds available for
distribution. (5)
2) Explain the tax implications of the proposed winding up of the trust in Barbara’s
lifetime, stating the amounts to be appropriated to each beneficiary, who would be
responsible for payment of any tax arising and how those liable could ensure that the
tax was able to be paid when and if it became due. (15)
Total (20)
Page 3 of 7
AT IHTTE
, 3. Jonty Feldspar, UK resident and domiciled, died intestate on 18 October 2021 aged 55. He lived
alone, had never been married, had no issue and his parents had predeceased him.
Jonty had made no lifetime transfers. At the time of his death his free estate comprised:
£
Private residence in Yorkshire 400,000
Cash in UK bank account 80,000
Total £480,000
Jonty also had a “free of tax” annuity of £20,000 per annum from the Myles Feldspar Will Trust,
which was created on the death of his brother Myles in 2010. Myles was his only sibling. Debbie,
Myles’ only daughter, is the life tenant of the trust and her children are the remaindermen.
The trust income for 2020/21 was as follows:
£
Property income (net of expenses) 43,000
Bank interest 8,000
UK dividends 15,000
Total £66,000
At the date of Jonty’s death, the trust assets were valued at £1.5 million.
Requirement:
Calculate the Inheritance Tax liability arising on Jonty’s death stating by whom this is
payable, the due date(s) of payment, and how his estate will be distributed.
(10)
Page 4 of 7
AT IHTTE
