THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Inheritance Tax, Trusts & Estates
May 2022
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.
• 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.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,You have started a new role as a tax manager in a firm of Chartered Tax Advisers. Caroline Robinson,
your Tax Partner, recently met with Peter Hartley and his wife, Saskia, who are long-standing clients of
the firm and trustees of the Hartley Settlement, which is also a client of your firm.
The Hartley Settlement owns land and buildings at Yew Tree Farm and following an offer from a property
developer for the purchase of part of the land and farm shop business, Peter and Saskia are seeking
advice on their proposals for the future of the trust.
Caroline has sent you an email setting out the background to the client and their queries (EXHIBIT A)
together with details of the trust assets and the draft sale and purchase agreement (EXHIBITS B and C).
She has asked you to prepare a draft report to the trustees addressing their concerns.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Caroline Robinson following a meeting with Peter and Saskia Hartley
EXHIBIT B: Valuations and details of the assets held by the Hartley Settlement
EXHIBIT C: Extract from the draft sale and purchase agreement for the sale of West Fields
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to the trustees of the Hartley Settlement, for review by Caroline Robinson,
which provides recommendations in relation to the sale of the land, property and farm shop
business at West Fields and the cessation of Peter Hartley’s interest in possession in the
remaining trust assets.
,Continuation
EXHIBIT A
Email from Caroline Robinson following a meeting with Peter and Saskia Hartley
To: Tax Manager <>
From: Caroline Robinson <>
Date: 3 May 2022 10:20
Subject: Draft Report for the Hartley Settlement
I met with Peter and Saskia Hartley yesterday to discuss some proposals that they have in mind for the
Hartley Settlement. I have set out below some background information relating to the clients and their
specific queries.
The trust owns the 330 acre site making up Yew Tree Farm which was farmed by the previous two
generations of the Hartley family. The land has been farmed by the trust since 1995 with the help of a
farm manager. Luke, Peter and Saskia’s son, took over the farm manager role about 15 years ago when
the previous employee retired.
Peter and Saskia have never been personally involved in the farming business and they lived in London
until 2012 running a successful architect’s practice. The practice was sold in 2012 and I recall that the
capital gain was in the region of £2.5 million each, but this qualified in full for Entrepreneurs’ Relief (now
Business Asset Disposal Relief). They moved back to Cornwall at that time to be closer to Luke and his
family.
The land at the farm is split into four areas – North Fields, South Fields, East Fields and West Fields. Full
details of how each area is used and the respective valuations are shown on the attached schedule
(EXHIBIT B).
Last month, a property developer made an offer of £2.32 million to purchase the West Fields Farm Shop
business and the remainder of the West Fields site. The 40 acre site was left unused after Geoffrey
Hartley’s death as it was not easily accessible until around 2018, when the new ‘A’ road was built next to
the land. To take advantage of this new access route, the trustees decided to develop five acres of the
site using £75,000 of the trust’s cash funds and converted one of the derelict barns into a farm shop and
car park.
Peter has been running the farm shop as a sole trader since April 2019, employing a team of local staff
to assist him. The shop and café have become very popular and the developer now wants to purchase
the business and the rest of the West Fields site. He plans to convert the remaining four unused barns
into shop units and extend the car park to create an exclusive shopping complex selling locally produced
goods. An extract from the draft sale and purchase agreement is attached (EXHIBIT C).
Peter and Saskia are keen to accept the offer as they both want to retire and last year they purchased a
plot of land a few miles away and started to build a new eco-friendly home for themselves. They have
significant personal wealth aside from the Hartley Settlement, but this is tied up in investments and
properties, so ideally they would like to use the proceeds from the sale of West Fields to fund the
remaining build and furnishing costs of their new home. They have suggested that the net cash proceeds
from the sale after tax are appointed to Peter out of the trust, as this is allowed under the terms of the
trust.
Saskia has capital losses of £75,300 after making some bad investment choices in 2013. These were
claimed on her 2013/14 self-assessment tax return and have been carried forward and remain unused to
date. As usual, she brought up the losses as she always does at our meetings, so please could you
consider this when preparing the report? It would be good if these losses could finally be used, but
obviously only if this results in an overall tax saving compared to a straight sale by the trustees.
Peter and Saskia have also been considering their estates and their Inheritance Tax exposure. Once the
sale of West Fields is concluded, they think it will then be the right time for Peter’s interest in possession
in the remaining trust assets to cease.
They feel that the best course of action after the sale would be for Luke to be given a life interest in the
trust, then for the assets to pass to his children absolutely on his death. The reason they want to keep the
trust in place is because they do not get on with Luke’s step-children and do not want to run the risk of
Yew Tree Farm potentially ending up in their ownership in the future.
However, Peter and Saskia have said that they would also like to know the tax implications if Peter gives
up his interest in possession with the trust wound up and the assets appointed to Luke following the sale
of West Fields. They would consider this option if there are significant tax savings but only on the
understanding that Luke would leave the farm to his own children in his Will and not his step-children.
They want our recommendation from a tax point of view and Peter said that he would settle any tax
charges arising as a result of his interest in possession ending.
, Continuation
EXHIBIT B
Valuations and details of the assets held by the Hartley Settlement
Asset Use of land Valuations (price per acre)
6 Oct 1983 8 May 1995 Current value
North 120 acres of prime arable land £1,400 AV £5,000 AV £9,750 AV
Fields with reasonable road access. £2,000 MV £7,200 MV £15,000 MV
150 acres The current crop is wheat and
and barns the land has been farmed in
hand by the trust since 1995.
See notes
1) and 2) Surrounded by 30 acres of £350 £1,950 £4,400
below. woodland which acts as a
shelter belt against harsh
weather.
Six barns with no development £1,000 £5,000 £10,000
potential located within North per barn per barn per barn
Fields. Used for storage of
tractors and equipment.
South Average quality land with good £975 AV £3,100 AV £8,000 AV
Fields access to the main road. £1,350 MV £4,400 MV £12,500 MV
50 acres Farmed in hand by the trust
since 1995.
See notes
1) and 2) Current crop is potatoes which
below. are sold in Yew Tree Farm
Shop and to local grocers and
restaurants.
East Fields Poor quality, hilly land, £500 £1,750 £6,500
90 acres unsuitable for growing crops.
See notes Unused until June 2017 when it
2) and 3) was let to neighbouring farmer
below who since then uses the land
within his sheep farming
business.
West Fields Unused average quality land. £500 £1,250 Now comprises the
40 acres farm shop, car park,
Five derelict barns. £800 £2,750 and 35 acres of
per barn per barn unused land with four
The unused land and derelict derelict barns.
barns have good development
potential due to their condition See EXHIBIT C for
and location. current values.
Cash Held in a non-interest bearing Current balance = £6,925
relating to bank account.
East Field
rents
Notes
1) Geoffrey Hartley claimed Capital Gains holdover relief on the transfer of North Fields and South
Fields to the trustees of the Hartley Settlement.
2) The market value (MV) and agricultural value (AV) of each area of land or each building are equal
unless otherwise stated.
3) The trustees do not treat East Fields as part of the farming trade and the income received from the
neighbouring farmer is reported as rental income.
APPLICATION AND PROFESSIONAL SKILLS
Inheritance Tax, Trusts & Estates
May 2022
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.
• 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.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,You have started a new role as a tax manager in a firm of Chartered Tax Advisers. Caroline Robinson,
your Tax Partner, recently met with Peter Hartley and his wife, Saskia, who are long-standing clients of
the firm and trustees of the Hartley Settlement, which is also a client of your firm.
The Hartley Settlement owns land and buildings at Yew Tree Farm and following an offer from a property
developer for the purchase of part of the land and farm shop business, Peter and Saskia are seeking
advice on their proposals for the future of the trust.
Caroline has sent you an email setting out the background to the client and their queries (EXHIBIT A)
together with details of the trust assets and the draft sale and purchase agreement (EXHIBITS B and C).
She has asked you to prepare a draft report to the trustees addressing their concerns.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Caroline Robinson following a meeting with Peter and Saskia Hartley
EXHIBIT B: Valuations and details of the assets held by the Hartley Settlement
EXHIBIT C: Extract from the draft sale and purchase agreement for the sale of West Fields
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to the trustees of the Hartley Settlement, for review by Caroline Robinson,
which provides recommendations in relation to the sale of the land, property and farm shop
business at West Fields and the cessation of Peter Hartley’s interest in possession in the
remaining trust assets.
,Continuation
EXHIBIT A
Email from Caroline Robinson following a meeting with Peter and Saskia Hartley
To: Tax Manager <>
From: Caroline Robinson <>
Date: 3 May 2022 10:20
Subject: Draft Report for the Hartley Settlement
I met with Peter and Saskia Hartley yesterday to discuss some proposals that they have in mind for the
Hartley Settlement. I have set out below some background information relating to the clients and their
specific queries.
The trust owns the 330 acre site making up Yew Tree Farm which was farmed by the previous two
generations of the Hartley family. The land has been farmed by the trust since 1995 with the help of a
farm manager. Luke, Peter and Saskia’s son, took over the farm manager role about 15 years ago when
the previous employee retired.
Peter and Saskia have never been personally involved in the farming business and they lived in London
until 2012 running a successful architect’s practice. The practice was sold in 2012 and I recall that the
capital gain was in the region of £2.5 million each, but this qualified in full for Entrepreneurs’ Relief (now
Business Asset Disposal Relief). They moved back to Cornwall at that time to be closer to Luke and his
family.
The land at the farm is split into four areas – North Fields, South Fields, East Fields and West Fields. Full
details of how each area is used and the respective valuations are shown on the attached schedule
(EXHIBIT B).
Last month, a property developer made an offer of £2.32 million to purchase the West Fields Farm Shop
business and the remainder of the West Fields site. The 40 acre site was left unused after Geoffrey
Hartley’s death as it was not easily accessible until around 2018, when the new ‘A’ road was built next to
the land. To take advantage of this new access route, the trustees decided to develop five acres of the
site using £75,000 of the trust’s cash funds and converted one of the derelict barns into a farm shop and
car park.
Peter has been running the farm shop as a sole trader since April 2019, employing a team of local staff
to assist him. The shop and café have become very popular and the developer now wants to purchase
the business and the rest of the West Fields site. He plans to convert the remaining four unused barns
into shop units and extend the car park to create an exclusive shopping complex selling locally produced
goods. An extract from the draft sale and purchase agreement is attached (EXHIBIT C).
Peter and Saskia are keen to accept the offer as they both want to retire and last year they purchased a
plot of land a few miles away and started to build a new eco-friendly home for themselves. They have
significant personal wealth aside from the Hartley Settlement, but this is tied up in investments and
properties, so ideally they would like to use the proceeds from the sale of West Fields to fund the
remaining build and furnishing costs of their new home. They have suggested that the net cash proceeds
from the sale after tax are appointed to Peter out of the trust, as this is allowed under the terms of the
trust.
Saskia has capital losses of £75,300 after making some bad investment choices in 2013. These were
claimed on her 2013/14 self-assessment tax return and have been carried forward and remain unused to
date. As usual, she brought up the losses as she always does at our meetings, so please could you
consider this when preparing the report? It would be good if these losses could finally be used, but
obviously only if this results in an overall tax saving compared to a straight sale by the trustees.
Peter and Saskia have also been considering their estates and their Inheritance Tax exposure. Once the
sale of West Fields is concluded, they think it will then be the right time for Peter’s interest in possession
in the remaining trust assets to cease.
They feel that the best course of action after the sale would be for Luke to be given a life interest in the
trust, then for the assets to pass to his children absolutely on his death. The reason they want to keep the
trust in place is because they do not get on with Luke’s step-children and do not want to run the risk of
Yew Tree Farm potentially ending up in their ownership in the future.
However, Peter and Saskia have said that they would also like to know the tax implications if Peter gives
up his interest in possession with the trust wound up and the assets appointed to Luke following the sale
of West Fields. They would consider this option if there are significant tax savings but only on the
understanding that Luke would leave the farm to his own children in his Will and not his step-children.
They want our recommendation from a tax point of view and Peter said that he would settle any tax
charges arising as a result of his interest in possession ending.
, Continuation
EXHIBIT B
Valuations and details of the assets held by the Hartley Settlement
Asset Use of land Valuations (price per acre)
6 Oct 1983 8 May 1995 Current value
North 120 acres of prime arable land £1,400 AV £5,000 AV £9,750 AV
Fields with reasonable road access. £2,000 MV £7,200 MV £15,000 MV
150 acres The current crop is wheat and
and barns the land has been farmed in
hand by the trust since 1995.
See notes
1) and 2) Surrounded by 30 acres of £350 £1,950 £4,400
below. woodland which acts as a
shelter belt against harsh
weather.
Six barns with no development £1,000 £5,000 £10,000
potential located within North per barn per barn per barn
Fields. Used for storage of
tractors and equipment.
South Average quality land with good £975 AV £3,100 AV £8,000 AV
Fields access to the main road. £1,350 MV £4,400 MV £12,500 MV
50 acres Farmed in hand by the trust
since 1995.
See notes
1) and 2) Current crop is potatoes which
below. are sold in Yew Tree Farm
Shop and to local grocers and
restaurants.
East Fields Poor quality, hilly land, £500 £1,750 £6,500
90 acres unsuitable for growing crops.
See notes Unused until June 2017 when it
2) and 3) was let to neighbouring farmer
below who since then uses the land
within his sheep farming
business.
West Fields Unused average quality land. £500 £1,250 Now comprises the
40 acres farm shop, car park,
Five derelict barns. £800 £2,750 and 35 acres of
per barn per barn unused land with four
The unused land and derelict derelict barns.
barns have good development
potential due to their condition See EXHIBIT C for
and location. current values.
Cash Held in a non-interest bearing Current balance = £6,925
relating to bank account.
East Field
rents
Notes
1) Geoffrey Hartley claimed Capital Gains holdover relief on the transfer of North Fields and South
Fields to the trustees of the Hartley Settlement.
2) The market value (MV) and agricultural value (AV) of each area of land or each building are equal
unless otherwise stated.
3) The trustees do not treat East Fields as part of the farming trade and the income received from the
neighbouring farmer is reported as rental income.
