THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Inheritance Tax, Trusts & Estates
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in
each of three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will
be awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those
topics will be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or
4. A grade of 3 or 4 is required to demonstrate competence.
• 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.
,You are a tax manager in a firm of Chartered Tax Advisers. Following a meeting last week, your
Tax Partner, Alison Clarke, has received an email (EXHIBIT A) from Richard Cresswell and
Tara Marchant who are trustees of the Cresswell Family Settlement, a new client of your firm.
The Cresswell Family Settlement was a lifetime trust created by Lady Lily Cresswell in 2014.
The current trustees were not aware of the existence of the trust until recently as their elderly
aunt and uncle were the original trustees.
Lily’s death on 2 March 2019 has triggered a further Inheritance Tax charge which is now is
overdue and one of the trust assets must be sold to fund the liability. In addition, the
beneficiaries of the trust are approaching their respective 30th birthdays, after which the trust
will cease.
Alison has asked you to review the email and the other documents provided by Richard and
Tara (EXHIBITS B and C) and to prepare a draft report to the trustees addressing their
concerns.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Richard Cresswell to Alison Clarke on behalf of the trustees
EXHIBIT B: Valuation of assets held by the Cresswell Family Settlement
EXHIBIT C: Financial information for Cresswell Garden Centres Ltd
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to the trustees of the Cresswell Family Settlement, for review by
Alison Clarke, which provides recommendations in relation to the sale of assets and
advice on the tax issues arising on the cessation of the settlement.
Continued
Page 2 of 9 APS IHTTE
,Continuation
EXHIBIT A
Email from Richard Cresswell to Alison Clarke on behalf of the trustees
To: Alison Clarke <>
From: Richard Cresswell <>
Date: 1 May 2021 14:10
Subject: Cresswell Family Settlement
Dear Alison
Thank you for your time last week. Tara and I have discussed matters further and have detailed
below our areas of concern.
As you know, we were not aware that the Cresswell Family Settlement existed until recently.
Our mother, Lily, was always very private and never discussed her financial affairs with us. She
only confided that a trust had been created to our Uncle Oliver and Aunt Violet. Amanda and
Darcy have always declared the income from the assets that turned out to be held on trust on
their own tax returns. Oliver administered the trust since its creation but both he and Violet
retired as trustees in March this year due to ill health and Tara and I agreed to be appointed in
their place. As requested, I enclose valuations of the trust assets which also include Oliver’s
notes (EXHIBIT B).
The solicitor dealing with our mother’s estate has advised us that an Inheritance Tax liability of
£70,500 (including interest charges calculated to the end of June 2021) was due on
30 September 2019, as Lily did not survive seven years from creating the trust. The trust bank
account only holds a small balance, so we need to sell a trust asset to fund this.
The best option to raise the money quickly will be to sell either Bramble Cottage or the paddock.
Bramble Cottage is in a terrible condition, but we think there will be considerable interest from
property developers if it is listed in the next local property auction on 31 May 2021. Alternatively,
the paddock could be sold to the neighbouring farmer, as he has always wanted to buy the
land.
If Bramble Cottage is sold, the combined (VAT inclusive) auction house and legal fees will be
1.5% of the proceeds. If the paddock is sold, our solicitor will charge a flat fee of £500 (VAT
inclusive) for the legal transfer. Either option will raise sufficient proceeds but obviously we have
not factored in the tax consequences and need your assistance with this.
The second area of concern is that my daughter Amanda will be 30 years old on 18 September
2021 and Tara’s daughter, Darcy will be 30 years old on 21 May 2023, after which the trust will
end. Please would you clarify the tax issues we should be aware of in relation to this and if
there is any action we need to take before Amanda’s birthday?
Amanda and Darcy have agreed to pay the tax due when the trust ends as they have each
received a sizeable cash legacy from their grandmother. However, we do not want either of
them to be left in a position where the tax liabilities from the trust consume most of their
inheritance. They both plan to keep the shares in the company as they want the ownership to
stay within the family and they are also happy to keep the rental assets as long-term
investments.
Finally, we should tell you about the changes made to the business (Cresswell Garden Centres
Ltd) over the past few years as this may be relevant. As you know, the company was not in a
healthy financial position when our mother died. She had a strong view on how the business
should be run and always insisted that plants and bulbs would be the only products on sale.
She refused to allow any gardening related products, other merchandise or food and drinks to
be sold and she resisted online sales until 2012.
Continued
Page 3 of 9 APS IHTTE
, Continuation
In Summer 2019 we undertook a major overhaul of the business and decided to reduce the
floor space in each store dedicated to our own stock down to about 60% of the total area. We
now only stock the most unusual varieties of plants and bulbs, but we have not cut staff numbers
as we want to maintain the best levels of customer service.
The remaining area in each centre is now let to third-party retailers who sell items such as
outdoor clothing and shoes, art and craft materials, gardening equipment and furniture. Part of
the area in each centre is also let to a well-known bakery chain who run an in-store café on the
premises.
We have been amazed at the increase in customers visiting each site and the demand for our
specialist plants and bulbs means we have been able to increase prices. The increase in profits
in such a short space of time has exceeded our expectations and Tara and I wish that we had
persuaded our mother to make these changes years ago.
Enclosed is some financial information prepared by the company accountant, which he says
will be of use to you (EXHIBIT C).
We look forward to hearing from you shortly regarding our queries.
Yours sincerely
Richard Cresswell
On behalf of the trustees of the Cresswell Family Settlement
Continued
Page 4 of 9 APS IHTTE
APPLICATION AND PROFESSIONAL SKILLS
Inheritance Tax, Trusts & Estates
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in
each of three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will
be awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those
topics will be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or
4. A grade of 3 or 4 is required to demonstrate competence.
• 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.
,You are a tax manager in a firm of Chartered Tax Advisers. Following a meeting last week, your
Tax Partner, Alison Clarke, has received an email (EXHIBIT A) from Richard Cresswell and
Tara Marchant who are trustees of the Cresswell Family Settlement, a new client of your firm.
The Cresswell Family Settlement was a lifetime trust created by Lady Lily Cresswell in 2014.
The current trustees were not aware of the existence of the trust until recently as their elderly
aunt and uncle were the original trustees.
Lily’s death on 2 March 2019 has triggered a further Inheritance Tax charge which is now is
overdue and one of the trust assets must be sold to fund the liability. In addition, the
beneficiaries of the trust are approaching their respective 30th birthdays, after which the trust
will cease.
Alison has asked you to review the email and the other documents provided by Richard and
Tara (EXHIBITS B and C) and to prepare a draft report to the trustees addressing their
concerns.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Richard Cresswell to Alison Clarke on behalf of the trustees
EXHIBIT B: Valuation of assets held by the Cresswell Family Settlement
EXHIBIT C: Financial information for Cresswell Garden Centres Ltd
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to the trustees of the Cresswell Family Settlement, for review by
Alison Clarke, which provides recommendations in relation to the sale of assets and
advice on the tax issues arising on the cessation of the settlement.
Continued
Page 2 of 9 APS IHTTE
,Continuation
EXHIBIT A
Email from Richard Cresswell to Alison Clarke on behalf of the trustees
To: Alison Clarke <>
From: Richard Cresswell <>
Date: 1 May 2021 14:10
Subject: Cresswell Family Settlement
Dear Alison
Thank you for your time last week. Tara and I have discussed matters further and have detailed
below our areas of concern.
As you know, we were not aware that the Cresswell Family Settlement existed until recently.
Our mother, Lily, was always very private and never discussed her financial affairs with us. She
only confided that a trust had been created to our Uncle Oliver and Aunt Violet. Amanda and
Darcy have always declared the income from the assets that turned out to be held on trust on
their own tax returns. Oliver administered the trust since its creation but both he and Violet
retired as trustees in March this year due to ill health and Tara and I agreed to be appointed in
their place. As requested, I enclose valuations of the trust assets which also include Oliver’s
notes (EXHIBIT B).
The solicitor dealing with our mother’s estate has advised us that an Inheritance Tax liability of
£70,500 (including interest charges calculated to the end of June 2021) was due on
30 September 2019, as Lily did not survive seven years from creating the trust. The trust bank
account only holds a small balance, so we need to sell a trust asset to fund this.
The best option to raise the money quickly will be to sell either Bramble Cottage or the paddock.
Bramble Cottage is in a terrible condition, but we think there will be considerable interest from
property developers if it is listed in the next local property auction on 31 May 2021. Alternatively,
the paddock could be sold to the neighbouring farmer, as he has always wanted to buy the
land.
If Bramble Cottage is sold, the combined (VAT inclusive) auction house and legal fees will be
1.5% of the proceeds. If the paddock is sold, our solicitor will charge a flat fee of £500 (VAT
inclusive) for the legal transfer. Either option will raise sufficient proceeds but obviously we have
not factored in the tax consequences and need your assistance with this.
The second area of concern is that my daughter Amanda will be 30 years old on 18 September
2021 and Tara’s daughter, Darcy will be 30 years old on 21 May 2023, after which the trust will
end. Please would you clarify the tax issues we should be aware of in relation to this and if
there is any action we need to take before Amanda’s birthday?
Amanda and Darcy have agreed to pay the tax due when the trust ends as they have each
received a sizeable cash legacy from their grandmother. However, we do not want either of
them to be left in a position where the tax liabilities from the trust consume most of their
inheritance. They both plan to keep the shares in the company as they want the ownership to
stay within the family and they are also happy to keep the rental assets as long-term
investments.
Finally, we should tell you about the changes made to the business (Cresswell Garden Centres
Ltd) over the past few years as this may be relevant. As you know, the company was not in a
healthy financial position when our mother died. She had a strong view on how the business
should be run and always insisted that plants and bulbs would be the only products on sale.
She refused to allow any gardening related products, other merchandise or food and drinks to
be sold and she resisted online sales until 2012.
Continued
Page 3 of 9 APS IHTTE
, Continuation
In Summer 2019 we undertook a major overhaul of the business and decided to reduce the
floor space in each store dedicated to our own stock down to about 60% of the total area. We
now only stock the most unusual varieties of plants and bulbs, but we have not cut staff numbers
as we want to maintain the best levels of customer service.
The remaining area in each centre is now let to third-party retailers who sell items such as
outdoor clothing and shoes, art and craft materials, gardening equipment and furniture. Part of
the area in each centre is also let to a well-known bakery chain who run an in-store café on the
premises.
We have been amazed at the increase in customers visiting each site and the demand for our
specialist plants and bulbs means we have been able to increase prices. The increase in profits
in such a short space of time has exceeded our expectations and Tara and I wish that we had
persuaded our mother to make these changes years ago.
Enclosed is some financial information prepared by the company accountant, which he says
will be of use to you (EXHIBIT C).
We look forward to hearing from you shortly regarding our queries.
Yours sincerely
Richard Cresswell
On behalf of the trustees of the Cresswell Family Settlement
Continued
Page 4 of 9 APS IHTTE
