THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
November 2022
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.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• Additional marks may be awarded for presentation.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Zennie Bergamot holds substantial business interests through Zennie Group Ltd, an unquoted
company in which she has held 100% of the shares for 20 years.
The only assets of Zennie Group Ltd are shares in the following companies. Unless otherwise
stated, each of those companies operates luxury hotels in various UK locations and has no activities
other than those noted below. With the exception of Amber Ltd, the market value of each company
is £5 million. Amber Ltd has a market value of £50 million:
1) Amber Ltd (100% shareholding) – it has £5 million held in cash which has accumulated over
the 20 years that Zennie has held the shares. £2.5 million of this is needed as working
capital.
Amber Ltd also owns Zennie’s personal yacht, worth £1.2 million.
2) Bloodstone Ltd (100% shareholding) – it operates hotels located in Malta only.
3) Citrine Ltd (40% shareholding).
4) Diamond Ltd (100% shareholding) – a newly acquired subsidiary, purchased six months ago.
5) Emerald Ltd (100% shareholding) – also holds a stock market portfolio worth £500,000.
The group will shortly acquire for £1 million a portfolio of self-catering furnished holiday lets, known
as ‘The Glade’. This will either be acquired through Emerald Ltd or a newly incorporated 100%
subsidiary of Zennie Group Ltd.
Requirement:
1) Explain the application of Business Property Relief to Zennie’s shareholding in Zennie
Group Ltd. You are NOT required to quantify the relief available. (12)
2) Discuss whether ‘The Glade’ should be acquired by Emerald Ltd or a newly
incorporated subsidiary. (3)
Total (15)
,2. Theo Pugsley died in September 2016. He was married to his second wife Kaja and had two adult
children from his first marriage, which ended in divorce.
Under his Will he left £325,000 of cash to his children and the balance of his estate to the Theo
Pugsley Will Trust. In 2003, he had settled another trust but had made no other lifetime transfers
apart from within his annual and other lifetime exemptions.
The terms of the Will trust provide for a life interest to Kaja and on her death the trust assets pass
to Theo’s adult children absolutely. The trustees have wide powers to terminate Kaja’s life interest,
wind up the trust, appoint assets to the children or onto further trusts as they see fit. Kaja will re-
marry on 2 December 2022 and this has prompted the trustees to review the future of the trust.
They are considering the following:
1) Terminating the trust before Kaja’s re-marriage and appointing the assets to the children
absolutely.
2) Terminating Kaja’s life interest before her re-marriage and letting the trust continue.
3) Allowing the trust to terminate on Kaja’s death when the assets will pass to the children
absolutely.
The assets of the Theo Pugsley Will Trust are as follows:
Probate Value in 2016 Current value
£ £
Shares in Quality Sausages Ltd (Note 1) 1,300,000 1,700,000
Main residence (Note 2) 500,000 750,000
Quoted share portfolio (Note 3) 610,000 550,000
Investment (residential) property 250,000 310,000
Collection of motorbikes 190,000 700,000
Totals 2,850,000 4,010,000
Note 1
Quality Sausages Ltd is a trading company in which Theo owned all of the shares. The company
has not carried out any investment activities.
Note 2
The main residence was purchased by Theo in 2015 and was lived in by Theo and Kaja until Theo’s
death. Kaja continues to live in the property but will leave it on her re-marriage to live with her new
husband elsewhere.
Note 3
Sales and purchases have been made since the creation of the trust. On a realisation of the entire
portfolio there would be a capital loss of £50,000. There are no brought forward capital losses.
Kaja has made the following gifts:
1) January 2017 – £100,000 in cash to her sister Aggie.
2) March 2019 – An asset worth £80,000 to Aggie’s 100% personal company, Aggie Ltd.
3) May 2020 – £120,000 to an interest in possession trust for Aggie.
Currently, Kaja’s only asset is a stock market portfolio of shares with a value of £250,000. This will
pass to Aggie under Kaja’s new Will drawn up in contemplation of her impending marriage.
The trustees will pay any tax liabilities arising and any appropriate elections will be made.
Requirement:
Explain, with calculations, the Inheritance Tax and Capital Gains Tax consequences of the
three options for the Will trust assuming they each occur on 1 December 2022. (20)
, 3. On 10 May 2020, Cora Evans settled a portfolio of residential properties on trust for her husband
and adult children (‘the Property Trust’). She was not excluded from benefiting from the trust. At
that time, the properties were worth £2.5 million with a base cost of £800,000 and Cora paid the
Inheritance Tax arising. Cora was a higher rate income taxpayer and had made no other chargeable
disposals during 2020/21.
The only other lifetime gift made by Cora was cash of £100,000 into a trust for her adult daughter,
Vanessa, in June 2018 (‘Vanessa’s Trust’).
Cora died on 31July 2022 and left her estate to her adult children absolutely. Her net assets on
death comprised the following:
Value
£
Main residence 1,000,000
Commercial property 1,200,000
Stock Market portfolio 450,000
Antique statue collection 60,000
Total £2,710,000
As at 31 July 2022, the Property Trust was valued at £2.6 million.
Requirement:
1) Calculate the Inheritance Tax and Capital Gains Tax arising from setting up the
Property Trust, stating who was responsible for payment and when it was due. Ignore
any penalties and interest that may have arisen. (6)
2) Calculate the Inheritance Tax that will be charged on Cora’s death stating who is
responsible for payment and when it is due. (9)
Total (15)
ADVANCED TECHNICAL
Inheritance Tax, Trusts & Estates
November 2022
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.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• Additional marks may be awarded for presentation.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Zennie Bergamot holds substantial business interests through Zennie Group Ltd, an unquoted
company in which she has held 100% of the shares for 20 years.
The only assets of Zennie Group Ltd are shares in the following companies. Unless otherwise
stated, each of those companies operates luxury hotels in various UK locations and has no activities
other than those noted below. With the exception of Amber Ltd, the market value of each company
is £5 million. Amber Ltd has a market value of £50 million:
1) Amber Ltd (100% shareholding) – it has £5 million held in cash which has accumulated over
the 20 years that Zennie has held the shares. £2.5 million of this is needed as working
capital.
Amber Ltd also owns Zennie’s personal yacht, worth £1.2 million.
2) Bloodstone Ltd (100% shareholding) – it operates hotels located in Malta only.
3) Citrine Ltd (40% shareholding).
4) Diamond Ltd (100% shareholding) – a newly acquired subsidiary, purchased six months ago.
5) Emerald Ltd (100% shareholding) – also holds a stock market portfolio worth £500,000.
The group will shortly acquire for £1 million a portfolio of self-catering furnished holiday lets, known
as ‘The Glade’. This will either be acquired through Emerald Ltd or a newly incorporated 100%
subsidiary of Zennie Group Ltd.
Requirement:
1) Explain the application of Business Property Relief to Zennie’s shareholding in Zennie
Group Ltd. You are NOT required to quantify the relief available. (12)
2) Discuss whether ‘The Glade’ should be acquired by Emerald Ltd or a newly
incorporated subsidiary. (3)
Total (15)
,2. Theo Pugsley died in September 2016. He was married to his second wife Kaja and had two adult
children from his first marriage, which ended in divorce.
Under his Will he left £325,000 of cash to his children and the balance of his estate to the Theo
Pugsley Will Trust. In 2003, he had settled another trust but had made no other lifetime transfers
apart from within his annual and other lifetime exemptions.
The terms of the Will trust provide for a life interest to Kaja and on her death the trust assets pass
to Theo’s adult children absolutely. The trustees have wide powers to terminate Kaja’s life interest,
wind up the trust, appoint assets to the children or onto further trusts as they see fit. Kaja will re-
marry on 2 December 2022 and this has prompted the trustees to review the future of the trust.
They are considering the following:
1) Terminating the trust before Kaja’s re-marriage and appointing the assets to the children
absolutely.
2) Terminating Kaja’s life interest before her re-marriage and letting the trust continue.
3) Allowing the trust to terminate on Kaja’s death when the assets will pass to the children
absolutely.
The assets of the Theo Pugsley Will Trust are as follows:
Probate Value in 2016 Current value
£ £
Shares in Quality Sausages Ltd (Note 1) 1,300,000 1,700,000
Main residence (Note 2) 500,000 750,000
Quoted share portfolio (Note 3) 610,000 550,000
Investment (residential) property 250,000 310,000
Collection of motorbikes 190,000 700,000
Totals 2,850,000 4,010,000
Note 1
Quality Sausages Ltd is a trading company in which Theo owned all of the shares. The company
has not carried out any investment activities.
Note 2
The main residence was purchased by Theo in 2015 and was lived in by Theo and Kaja until Theo’s
death. Kaja continues to live in the property but will leave it on her re-marriage to live with her new
husband elsewhere.
Note 3
Sales and purchases have been made since the creation of the trust. On a realisation of the entire
portfolio there would be a capital loss of £50,000. There are no brought forward capital losses.
Kaja has made the following gifts:
1) January 2017 – £100,000 in cash to her sister Aggie.
2) March 2019 – An asset worth £80,000 to Aggie’s 100% personal company, Aggie Ltd.
3) May 2020 – £120,000 to an interest in possession trust for Aggie.
Currently, Kaja’s only asset is a stock market portfolio of shares with a value of £250,000. This will
pass to Aggie under Kaja’s new Will drawn up in contemplation of her impending marriage.
The trustees will pay any tax liabilities arising and any appropriate elections will be made.
Requirement:
Explain, with calculations, the Inheritance Tax and Capital Gains Tax consequences of the
three options for the Will trust assuming they each occur on 1 December 2022. (20)
, 3. On 10 May 2020, Cora Evans settled a portfolio of residential properties on trust for her husband
and adult children (‘the Property Trust’). She was not excluded from benefiting from the trust. At
that time, the properties were worth £2.5 million with a base cost of £800,000 and Cora paid the
Inheritance Tax arising. Cora was a higher rate income taxpayer and had made no other chargeable
disposals during 2020/21.
The only other lifetime gift made by Cora was cash of £100,000 into a trust for her adult daughter,
Vanessa, in June 2018 (‘Vanessa’s Trust’).
Cora died on 31July 2022 and left her estate to her adult children absolutely. Her net assets on
death comprised the following:
Value
£
Main residence 1,000,000
Commercial property 1,200,000
Stock Market portfolio 450,000
Antique statue collection 60,000
Total £2,710,000
As at 31 July 2022, the Property Trust was valued at £2.6 million.
Requirement:
1) Calculate the Inheritance Tax and Capital Gains Tax arising from setting up the
Property Trust, stating who was responsible for payment and when it was due. Ignore
any penalties and interest that may have arisen. (6)
2) Calculate the Inheritance Tax that will be charged on Cora’s death stating who is
responsible for payment and when it is due. (9)
Total (15)
