Inheritance Tax
Wills and Administration of Estates > Inheritance Tax
What Is Inheritance Tax in SQE1?
Candidates frequently misapply the nil-rate band or confuse PETs with CLTs on SQE1 — costly mistakes in calculation questions. Inheritance Tax (IHT) is a tax on transfers of value. SQE1 tests your understanding of the charging structure, exemptions and reliefs, and your ability to calculate the tax due on death and lifetime transfers. You need to understand the distinction between potentially exempt transfers (PETs) and chargeable lifetime transfers (CLTs), the nil-rate band system, and the key exemptions.
Key Principles for SQE1
Understanding how property passing outside the estate interacts with IHT rules is vital, as is knowledge of personal representatives' obligations during administration. The broader wills and administration of estates framework connects lifetime and death transfers.
Exam Tip
Inheritance tax questions reward precision with statutory figures and a clear understanding of PETs versus CLTs. Always remember the current nil-rate band (325,000) and work through the checklist: (1) Is this a PET or CLT? (2) Have seven years passed (or did the transferor die within seven years)? (3) Which exemptions apply? (4) Is there an available nil-rate band? These steps will guide you to the correct calculation in almost every scenario.
How This Appears in SQE1 Questions
Examiners test this area repeatedly with detailed calculation scenarios. SQE1 candidates should expect to encounter inheritance tax questions that test your ability to:
- Apply the relevant statutory provisions
- Identify key facts that trigger specific rules
- Provide practical advice on estate administration
- Spot common pitfalls and exceptions
Common Mistakes Students Make
Watch out for these common errors when answering SQE1 questions on this topic:
- Overlooking statutory requirements and formalities
- Confusing different rules that apply in similar circumstances
- Failing to apply procedural requirements correctly
- Missing the tax implications of various decisions
Quick Summary
- This topic combines statutory knowledge with practical application.
- Master the key principles, understand the statutory framework, and practise applying these rules to realistic client scenarios.
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A woman made a gift of £500,000 to a discretionary trust in January 2019. She had made no previous chargeable lifetime transfers. The nil rate band at the time of the transfer was £325,000. The woman paid the inheritance tax arising on the transfer herself. The woman died in March 2024. Her death estate is valued at £600,000. She made no other lifetime transfers between January 2019 and her death. The nil rate band at the date of death remains £325,000. The woman's will leaves her entire estate to her adult son. The woman's husband had predeceased her in 2015, and his nil rate band was fully used on his death. The woman had a modest portfolio of listed shares which she managed herself and which formed part of the death estate. The trustees of the discretionary trust have been advised that additional inheritance tax may be payable as a result of the woman's death. The son has asked the solicitor administering the estate to explain the tax position. The woman had been a regular donor to a national charity, making annual gifts of £2,000 each Christmas. She had also paid her grandson's school fees of £8,000 per year from her income.
What is the inheritance tax position in respect of the lifetime gift to the discretionary trust following the woman's death?
Question 2
Scenario
A man died in 2024 leaving an estate valued at £850,000. His valid will leaves the entire estate to his two adult children in equal shares. The man's wife predeceased him in 2020. On the wife's death, her entire estate of £200,000 passed to the man under her will. No inheritance tax was payable on the wife's death because the spousal exemption applied. The man had made no lifetime transfers. The nil rate band at the date of the man's death is £325,000. The man's estate comprises a residential property worth £500,000, investments worth £250,000, and a bank account with £100,000. The man had no debts at the date of death. Funeral expenses are £5,000. The man's children have been advised that the transferable nil rate band may be available. The wife's estate had been modest and her executors had not needed to claim any reliefs or exemptions other than the spousal exemption. The man had been an active member of a local cricket club and had donated equipment to the club on several occasions during his lifetime.
What nil rate band is available to set against the man's death estate?
Question 3
Scenario
A man dies leaving an estate valued at £900,000. His valid will leaves £500,000 to his wife and the residue of £400,000 to his daughter. The man had made no lifetime gifts. The man's wife is domiciled in the United Kingdom. The estate comprises a residential property valued at £600,000, savings of £200,000, and investments of £100,000. The man's funeral expenses and debts total £25,000, which have been deducted from the estate value above. The man had a season ticket to his local football club, which has no monetary value. The man's daughter is 35 years old and works as an architect. She has her own property and is financially independent. The wife intends to continue living in the residential property.
What is the Inheritance Tax payable on the man's estate?
Practice with full exam-style questions
Related Topics
- Grants of Representation for SQE1
- Income Tax and CGT During Administration for SQE1
- Property Passing Outside the Estate for SQE1
- SQE1 Wills and Administration of Estates: Complete Guide
Practise Inheritance Tax Questions for SQE1
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