THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
May 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. Fiona Davey, aged 52, was born in the UK, to UK domiciled parents but emigrated to
Australia with her parents and brother 50 years ago. She acquired a domicile of
dependence in Australia and now considers herself Australian domiciled.
Fiona is being seconded by her Australian employer to the UK on a three-year contract.
She will start her UK role and become UK resident on 1 January 2022 but intends to
return home to Australia once the contract comes to an end.
Fiona set up a discretionary trust on 1 March 2013 after the death of her husband. Fiona
is a trustee together with her brother who is Australian resident and domiciled. The
beneficiaries are Fiona and her two adult children.
The trust’s assets consist of an investment portfolio and cash. The portfolio contains
some UK situs investments that produce UK dividend income each year.
Fiona has never received any income or capital distributions from the trust and views the
trust as being primarily established for the benefit of her children.
Requirement:
Explain the Income Tax, Capital Gains Tax and Inheritance Tax implications in
relation to the trust for Fiona and the trustees whilst she is UK resident and advise
what steps could be taken to mitigate any UK tax. (15)
2. Farida Ashar, who is UK resident and domiciled, has recently been diagnosed with a
degenerative disease and she anticipates that her health will deteriorate rapidly in the
next few years.
Farida plans to retire, sell her business and use the net proceeds (after paying any
Capital Gains Tax) to set up a trust for herself to protect her assets in the future.
Requirement:
Explain the specific circumstances in which such a trust can be created including
the immediate and ongoing tax implications of doing so. (10)
Page 2 of 6 AT IHTTE
,3. The Jones Trust was settled on 5 January 1986 by Lionel Jones, a UK resident and
domiciled individual. Lionel has not settled any other trusts or made any other gifts. The
beneficiaries of the trust are Lionel’s grandchildren who are:
Harry, born 21 May 1985
Beth, born 6 October 1990
Mae, born 4 November 1992
Under the terms of the trust, the trustees may distribute income and capital at their
discretion. However, when the grandchildren each attain the age of 30 years old they
become entitled to a life interest in their one third of the trust fund.
On 6 July 2015, a capital distribution of £20,000 was made to Harry on which he paid the
tax. On 5 January 2016, the trust’s assets were worth £950,000. None of the trust’s
assets qualified for Business Property Relief.
The income of the trust for the 2020/21 tax year was as follows:
6/4/20 - 5/10/20 6/10/20 - 5/4/21
£ £
Bank Interest 96 99
Dividends 18,000 21,000
Treasury stock 2,000 -
Accrued income scheme charge 275 -
Trust management expenses attributable to and met from income were £900.
The trustees sold the following assets in the 2020/21 tax year:
Asset Proceeds Cost
£ £
Holding of 5% Treasury Stock 5,500 5,000
Shares in Sweets plc 18,231 5,757
On 6 April 2020, the tax pool brought forward was £2,200.
On 6 August 2020, the trustees made a capital distribution of £20,000 to Beth, subject to
her meeting any tax liability thereon.
On 10 September 2020, the trustees made an income distribution of £5,000 to Mae.
Requirement:
1) Calculate the Income Tax and Capital Gains Tax liabilities of the trustees for
2020/21. (11)
2) Prepare the appropriate R185’s. (5)
3) Calculate the Inheritance Tax liability, if any, arising on the capital
distribution to Beth. (4)
Total (20)
Page 3 of 6 AT IHTTE
, 4. The Barker family are considering Inheritance Tax planning. William Barker is in good
health but his wife, Mary Barker has recently been diagnosed with a terminal illness and
has a life expectancy of 12-18 months. William and Mary are concerned about the value
of their estate and would like to gift assets to reduce the Inheritance Tax exposure on
death.
William and Mary have two adult sons, Henry and John and a daughter, Susan. Henry
currently lives abroad and is not UK resident but he has always indicated his desire to
live in the family home, Briar Wood, on his permanent return to the UK.
On 1 September 2010, William gave each of his three children £300,000.
On 1 December 2017, William and Mary sold their second home for £600,000. They
gifted the proceeds equally to their three children.
William and Mary’s main residence, Briar Wood is worth £2.4 million. The property is
owned as joint tenants.
They would like to gift one third of the property to Henry and it is proposed that Henry
would buy the remaining two thirds at its full market value of £1.6 million. William and
Mary would then gift the £1.6 million proceeds to John and Susan equally.
William and Mary would initially continue to occupy Briar Wood. In approximately five
years, Henry plans to return permanently to the UK and live in Briar Wood. At that time,
William would move out of Briar Wood and into a smaller nearby property which he
intends to purchase.
Henry has not spent any of the money gifted by his parents and could use these funds,
together with a mortgage, to purchase the two third share of Briar Wood. Alternatively,
he could entirely fund the purchase with a mortgage.
Requirement:
Explain the Inheritance Tax implications of the family’s proposals making
suggestions on how this could be improved, and of Henry’s plans for funding the
purchase. (15)
Page 4 of 6 AT IHTTE
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
May 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. Fiona Davey, aged 52, was born in the UK, to UK domiciled parents but emigrated to
Australia with her parents and brother 50 years ago. She acquired a domicile of
dependence in Australia and now considers herself Australian domiciled.
Fiona is being seconded by her Australian employer to the UK on a three-year contract.
She will start her UK role and become UK resident on 1 January 2022 but intends to
return home to Australia once the contract comes to an end.
Fiona set up a discretionary trust on 1 March 2013 after the death of her husband. Fiona
is a trustee together with her brother who is Australian resident and domiciled. The
beneficiaries are Fiona and her two adult children.
The trust’s assets consist of an investment portfolio and cash. The portfolio contains
some UK situs investments that produce UK dividend income each year.
Fiona has never received any income or capital distributions from the trust and views the
trust as being primarily established for the benefit of her children.
Requirement:
Explain the Income Tax, Capital Gains Tax and Inheritance Tax implications in
relation to the trust for Fiona and the trustees whilst she is UK resident and advise
what steps could be taken to mitigate any UK tax. (15)
2. Farida Ashar, who is UK resident and domiciled, has recently been diagnosed with a
degenerative disease and she anticipates that her health will deteriorate rapidly in the
next few years.
Farida plans to retire, sell her business and use the net proceeds (after paying any
Capital Gains Tax) to set up a trust for herself to protect her assets in the future.
Requirement:
Explain the specific circumstances in which such a trust can be created including
the immediate and ongoing tax implications of doing so. (10)
Page 2 of 6 AT IHTTE
,3. The Jones Trust was settled on 5 January 1986 by Lionel Jones, a UK resident and
domiciled individual. Lionel has not settled any other trusts or made any other gifts. The
beneficiaries of the trust are Lionel’s grandchildren who are:
Harry, born 21 May 1985
Beth, born 6 October 1990
Mae, born 4 November 1992
Under the terms of the trust, the trustees may distribute income and capital at their
discretion. However, when the grandchildren each attain the age of 30 years old they
become entitled to a life interest in their one third of the trust fund.
On 6 July 2015, a capital distribution of £20,000 was made to Harry on which he paid the
tax. On 5 January 2016, the trust’s assets were worth £950,000. None of the trust’s
assets qualified for Business Property Relief.
The income of the trust for the 2020/21 tax year was as follows:
6/4/20 - 5/10/20 6/10/20 - 5/4/21
£ £
Bank Interest 96 99
Dividends 18,000 21,000
Treasury stock 2,000 -
Accrued income scheme charge 275 -
Trust management expenses attributable to and met from income were £900.
The trustees sold the following assets in the 2020/21 tax year:
Asset Proceeds Cost
£ £
Holding of 5% Treasury Stock 5,500 5,000
Shares in Sweets plc 18,231 5,757
On 6 April 2020, the tax pool brought forward was £2,200.
On 6 August 2020, the trustees made a capital distribution of £20,000 to Beth, subject to
her meeting any tax liability thereon.
On 10 September 2020, the trustees made an income distribution of £5,000 to Mae.
Requirement:
1) Calculate the Income Tax and Capital Gains Tax liabilities of the trustees for
2020/21. (11)
2) Prepare the appropriate R185’s. (5)
3) Calculate the Inheritance Tax liability, if any, arising on the capital
distribution to Beth. (4)
Total (20)
Page 3 of 6 AT IHTTE
, 4. The Barker family are considering Inheritance Tax planning. William Barker is in good
health but his wife, Mary Barker has recently been diagnosed with a terminal illness and
has a life expectancy of 12-18 months. William and Mary are concerned about the value
of their estate and would like to gift assets to reduce the Inheritance Tax exposure on
death.
William and Mary have two adult sons, Henry and John and a daughter, Susan. Henry
currently lives abroad and is not UK resident but he has always indicated his desire to
live in the family home, Briar Wood, on his permanent return to the UK.
On 1 September 2010, William gave each of his three children £300,000.
On 1 December 2017, William and Mary sold their second home for £600,000. They
gifted the proceeds equally to their three children.
William and Mary’s main residence, Briar Wood is worth £2.4 million. The property is
owned as joint tenants.
They would like to gift one third of the property to Henry and it is proposed that Henry
would buy the remaining two thirds at its full market value of £1.6 million. William and
Mary would then gift the £1.6 million proceeds to John and Susan equally.
William and Mary would initially continue to occupy Briar Wood. In approximately five
years, Henry plans to return permanently to the UK and live in Briar Wood. At that time,
William would move out of Briar Wood and into a smaller nearby property which he
intends to purchase.
Henry has not spent any of the money gifted by his parents and could use these funds,
together with a mortgage, to purchase the two third share of Briar Wood. Alternatively,
he could entirely fund the purchase with a mortgage.
Requirement:
Explain the Inheritance Tax implications of the family’s proposals making
suggestions on how this could be improved, and of Henry’s plans for funding the
purchase. (15)
Page 4 of 6 AT IHTTE
