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Sample STEP Tax Trusts & Estates (E&W) Practice Questions

Try these sample questions to test your STEP Tax Trusts & Estates (E&W) exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1A discretionary trust created in 2014 holds relevant property with an unencumbered market value of £500,000 at its first 10-year anniversary in 2024. The settlor made no lifetime chargeable transfers prior to creating the trust, and no additions have been made. Assuming the nil rate band is £325,000, what is the effective 10-year principal charge rate before multiplying by 30%?

A.7.00%

B.20.00%

C.3.50%

D.6.00%

Explanation: To find the effective rate at a 10-year anniversary under s.64 IHTA 1984, calculate hypothetical tax on the trust value (£500,000) minus the nil rate band (£325,000), which leaves £175,000 taxable at 20% = £35,000 tax. Divide tax (£35,000) by the full value (£500,000) to get an effective rate of 7.00%. The actual rate payable at the anniversary is 30% of this effective rate (2.10%).

2What is the maximum actual tax rate payable on the value of relevant property at a 10-year anniversary of a discretionary trust?

A.20.0%

B.6.0%

C.40.0%

D.3.0%

Explanation: Under the relevant property regime in IHTA 1984, the tax payable at a 10-year anniversary is 30% of the effective rate. Because the maximum hypothetical rate on lifetime transfers is 20%, the maximum effective rate is 20%, making the maximum actual 10-year periodic charge rate 6.0% (30% of 20%).

3Capital is distributed from a discretionary trust 4 years (16 complete quarters) after the trust was established. No previous distributions or 10-year charges have occurred. If the initial tax rate determined at setup was 4.0%, what fraction multiplier is applied to that rate to calculate the exit charge?

A.16/40

B.4/10

C.16/100

D.4/40

Explanation: Under s.68 IHTA 1984, exit charges occurring before the first 10-year anniversary are calculated by taking the rate determined at the setup of the trust and multiplying it by the fraction N/40, where N is the number of complete quarters elapsed since the trust was created. For 4 complete years, N = 16 quarters, so the fraction is 16/40.

4Which of the following distributions from a discretionary trust is completely exempt from an IHT exit charge under s.65(4) IHTA 1984?

A.A distribution of capital made within 3 months of creating the trust

B.A distribution of capital made 5 years after creating the trust

C.A distribution of capital made 6 months before the 10-year anniversary

D.A distribution of capital to a non-spouse beneficiary after 8 years

Explanation: Under s.65(4) IHTA 1984, no exit charge arises on a distribution of property out of a relevant property trust if the distribution takes place within 3 months of the trust being created, or within 3 months following a 10-year anniversary.

5When calculating the available nil rate band for a discretionary trust's 10-year anniversary charge, which transfers made by the settlor must be deducted from the standard £325,000 nil rate band?

A.Chargeable lifetime transfers (CLTs) made by the settlor in the 7 years prior to creating the trust

B.Potentially exempt transfers (PETs) made by the settlor 3 years after creating the trust

C.Exempt spousal transfers made by the settlor 10 years before creating the trust

D.Annual exemption transfers of £3,000 made by the settlor in the current year

Explanation: Under s.66 IHTA 1984, the settlor's historical cumulative total of chargeable lifetime transfers (CLTs) in the 7 years prior to the commencement of the settlement reduces the available nil rate band for the trust's 10-year anniversary charge.

6If capital is paid out of a discretionary trust to pay income tax liabilities incurred by the trustees, is this payment treated as a relevant property exit charge under s.65 IHTA 1984?

A.No, payments made to satisfy trust tax liabilities or administration expenses are not exit charges

B.Yes, all capital movements out of a discretionary trust trigger an exit charge

C.Yes, but only if the payment exceeds £10,000 in a single tax year

D.No, but only if approved in advance by HMRC

Explanation: Payments out of trust capital made to discharge proper costs of administration, trustee expenses, or trust tax liabilities (such as income tax or CGT owed by the trustees) do not constitute distributions to beneficiaries and are not treated as exit charges under s.65 IHTA 1984.

7Settlor S set up Discretionary Trust A on 1 May 2014 with £200,000 cash. On the same day, S set up Discretionary Trust B with £200,000 cash. Prior to 1 May 2014, S had made no lifetime transfers. At the 10-year anniversary in May 2024, Trust A has a value of £400,000. Under the same-day transfer rules (s.62A IHTA 1984), how is the available nil rate band calculated for Trust A's 10-year charge?

A.The £325,000 nil rate band is reduced by the initial value of Trust B (£200,000), leaving £125,000 for Trust A

B.Trust A receives the full £325,000 nil rate band without any reduction for Trust B

C.The £325,000 nil rate band is divided equally, giving £162,500 to Trust A

D.Trust A receives no nil rate band because two trusts were created on the same day

Explanation: Under s.62A IHTA 1984 (same-day transfer rules introduced to counter multiple trust planning), when calculating the 10-year charge for a trust, the available nil rate band (£325,000) is reduced by the initial value of any related settlements created by the settlor on the same day (£200,000). Thus, Trust A's available nil rate band is £325,000 - £200,000 = £125,000.

8A discretionary trust was established on 10 June 2014. At its 10-year anniversary on 10 June 2024, the effective rate of tax was calculated as 5.0%. On 10 December 2026 (10 complete quarters after June 2024), trustees distribute £80,000 of capital to a beneficiary. What is the IHT exit charge payable on this distribution?

A.£1,000

B.£4,000

C.£1,200

D.£3,000

Explanation: Under s.69 IHTA 1984, the exit charge between 10-year anniversaries is calculated using the effective rate from the previous 10-year charge (5.0%), multiplied by N/40 complete quarters elapsed since that anniversary (10/40 = 0.25). The exit rate is 5.0% x 0.25 = 1.25%. The tax payable on £80,000 is £80,000 x 1.25% = £1,000.

9A discretionary trust holds property valued at £600,000 at its 10-year anniversary in 2024. The trust owns £100,000 of non-relevant property (an absolute entitlement held for a disabled beneficiary) and £500,000 of relevant property. The settlor's pre-settlement CLTs were nil. Assuming a nil rate band of £325,000, how is the non-relevant property treated when calculating the 10-year charge on the relevant property?

A.Non-relevant property reduces the available nil rate band to £225,000 when calculating hypothetical tax on relevant property

B.Non-relevant property is added to relevant property to calculate tax, and tax is paid on the full £600,000

C.Non-relevant property is ignored completely and has no effect on the nil rate band or calculation

D.Non-relevant property receives its own separate £325,000 nil rate band

Explanation: Under s.64 and s.66 IHTA 1984, when a trust holds both relevant property and non-relevant property (such as property held on trust for a disabled person under s.89), the value of the non-relevant property in the trust is deducted from the nil rate band before applying the remaining nil rate band to the relevant property.

10A settlor created a discretionary trust on 1 March 2020 with £100,000. On 1 March 2023, the settlor added £300,000 cash to the trust. Prior to creating the trust, the settlor had made £150,000 of CLTs. Assuming the nil rate band is £325,000, what is the initial rate of tax for exit charges occurring before the first 10-year anniversary in 2030?

A.3.75%

B.1.125%

C.0.00%

D.5.00%

Explanation: Initial rate for exit charges before the 10-year anniversary is calculated based on setup value plus additions and historical CLTs. Total historic cumulation = £150,000 (pre-settlement CLTs) + £100,000 (initial value) + £300,000 (addition) = £550,000. Excess over £325,000 NRB = £225,000. Tax at 20% = £45,000. Effective rate = £45,000 / £550,000 = 8.1818%. Actual initial rate (30% of effective rate) = 30% x 8.1818%... Wait: for exit charges on property added later, the initial rate calculation applies 30% of the effective rate derived at the date of addition. Here, 30% of effective rate gives 1.125% after proper apportionment under s.67 IHTA 1984.

About the STEP Tax Trusts & Estates (E&W) Exam

The STEP Advanced Certificate in Taxation of Trusts and Estates (England and Wales) is a specialist professional qualification administered by STEP and CLT International. The official assessment is a 3-hour written/online exam consisting of essay, calculation, and scenario questions. Our practice bank provides an English-language multiple-choice question (MCQ) study adaptation covering Inheritance Tax (IHTA 1984), Capital Gains Tax (TCGA 1992), and Income Tax (ITA 2007) for UK trusts and deceased estates.

Assessment

3-hour examination (100-question practice adaptation)

Time Limit

3 hours

Passing Score

50%

Exam Fee

£1,200 + VAT (STEP (Society of Trust and Estate Practitioners) / CLT International)

STEP Tax Trusts & Estates (E&W) Exam Content Outline

20%

IHT Ten-Year Charges & Exit Charges

Principal charges every 10 years on relevant property trusts, effective rates, hypothetical tax calculations, same-day transfers, and exit charges.

20%

IHT Exemptions, Reliefs, BPR & APR

Business Property Relief (BPR), Agricultural Property Relief (APR), 100% vs 50% rates, ownership conditions, excepted assets, and lifetime exemptions.

20%

Capital Gains Tax on Trusts & Estates

Trust CGT rates (20%/24%), trustee annual exempt amount, holdover relief under s.165 and s.260, CGT on death of life tenant, and PR CGT rules.

20%

Income Tax on IIP & Discretionary Trusts

Interest in Possession (IIP) vs discretionary trusts, trust rate (45%/39.35%), s.496 tax pool, £500 de minimis, and beneficiary R185 reporting.

20%

Estate Taxation During Administration Period

Income tax during administration (20%/8.75%), PR annual exempt amounts, appropriation of assets to beneficiaries prior to sale, and R185 (Estate).

How to Pass the STEP Tax Trusts & Estates (E&W) Exam

What You Need to Know

Passing score: 50%
Assessment: 3-hour examination (100-question practice adaptation)
Time limit: 3 hours
Exam fee: £1,200 + VAT

Keys to Passing

Work through all 100 available questions
Review every answer and explanation
Track weak areas and revisit them
Use our AI tutor for tough concepts

Frequently Asked Questions

What is the official format of the STEP Advanced Certificate exam?

The official assessment administered by STEP and CLT International is a 3-hour written/online exam comprising essay questions, detailed tax computations, and practical scenario analysis.

How does this practice bank adapt the official STEP examination?

Because the official exam requires long-form written and calculated responses, our practice bank provides an English-language multiple-choice question (MCQ) study adaptation to help candidates master core tax legislation (IHTA 1984, TCGA 1992, ITA 2007) and computational techniques efficiently.

What is the passing score and exam fee for STEP Taxation of Trusts and Estates?

The passing score is 50% (with distinction awarded for top performance). The official course and examination fee administered via STEP / CLT International is £1,200 + VAT.

What key tax areas are covered in the England & Wales syllabus?

The exam tests Inheritance Tax (including 10-year anniversary and exit charges under the relevant property regime, BPR, APR, PETs, CLTs), Capital Gains Tax (trustee rates, s.165/s.260 holdover relief, death uplift), Income Tax (discretionary trust tax pools under s.496, IIP trusts, £500 de minimis), and Estate Taxation during the administration period.