ExpertMedium2 marksMultiple Choice
ACCA · Question 06 · Inheritance tax
Section A
Five years ago, Clara made a Potentially Exempt Transfer (PET) of shares in an unquoted trading company to her son, valued at £400,000. Clara died this year. At the date of her death, the shares had fallen in value to £250,000. Her son still owned the shares. Assuming no exemptions apply, what value is used for the PET in Clara's death estate calculation?
Section A
Five years ago, Clara made a Potentially Exempt Transfer (PET) of shares in an unquoted trading company to her son, valued at £400,000. Clara died this year. At the date of her death, the shares had fallen in value to £250,000. Her son still owned the shares. Assuming no exemptions apply, what value is used for the PET in Clara's death estate calculation?
Answer options:
A.
£400,000
B.
£250,000
C.
£0
D.
£150,000
How to approach this question
Recognize the conditions for Fall in Value Relief for IHT. If the donee still owns the asset at the donor's death and it has fallen in value, the lower value is used.
Full Answer
B.£250,000✓ Correct
Fall in value relief applies when a PET or CLT becomes chargeable as a result of death. If the transferee still owns the gifted asset at the date of death, and its market value at death (£250,000) is lower than its market value at the date of gift (£400,000), the value at death is substituted for the original transfer value in the IHT calculation.
Common mistakes
Using the original gift value, forgetting that fall in value relief is available.
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