ExpertMedium2 marksMultiple Choice
ACCA · Question 23 · Inheritance tax
Section B: Case 2 - Arthur Pendelton's Estate
Scenario: Arthur Pendelton died on 15 February 2024. He owned a working farm, 'Oakwood Farm', which he had actively farmed himself for the last 15 years. The farm consists of agricultural land, a farmhouse where Arthur lived, and two farm cottages occupied rent-free by his farm workers.
Question: Arthur's wife, Martha, died in 2010. At her death, the Nil Rate Band (NRB) was £325,000. She left £130,000 to their children and the rest of her estate to Arthur. What amount of NRB is available to Arthur's estate (excluding any Residence Nil Rate Band)?
Section B: Case 2 - Arthur Pendelton's Estate
Scenario: Arthur Pendelton died on 15 February 2024. He owned a working farm, 'Oakwood Farm', which he had actively farmed himself for the last 15 years. The farm consists of agricultural land, a farmhouse where Arthur lived, and two farm cottages occupied rent-free by his farm workers.
Question: Arthur's wife, Martha, died in 2010. At her death, the Nil Rate Band (NRB) was £325,000. She left £130,000 to their children and the rest of her estate to Arthur. What amount of NRB is available to Arthur's estate (excluding any Residence Nil Rate Band)?
Answer options:
A.
£325,000
B.
£520,000
C.
£650,000
D.
£455,000
How to approach this question
Calculate the percentage of the NRB used by the first spouse on death. Martha used £130k / £325k = 40%. The unused percentage is 60%. Apply this unused percentage to the NRB in force at the date of the second spouse's death (£325,000). Add this to Arthur's own NRB.
Full Answer
B.£520,000✓ Correct
When a spouse dies, any unused percentage of their Nil Rate Band (NRB) can be transferred to the surviving spouse. Martha used £130,000 of her £325,000 NRB, which is 40%. Therefore, 60% of her NRB was unused. At Arthur's death, the NRB is £325,000. The transferable amount is 60% x £325,000 = £195,000. Arthur's total available NRB is his own £325,000 + £195,000 = £520,000.
Common mistakes
Subtracting the absolute amount used (£130,000) from the current NRB, though in this case the NRB hasn't changed since 2010, so the math works out the same. However, the correct method is percentage-based.
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