Jimmy died on 14 February 2021. He had made the following gifts during his lifetime:

(1) On 2 August 2019, he made a cash gift of £50,000 to his grandson. This was a wedding present.

(2) On 14 November 2019, he made a cash gift of £800,000 to a trust. Jimmy paid the inheritance tax arising from this gift.

At the date of his death Jimmy owned the following assets:

(1) His main residence valued at £260,000.

(2) Building society deposits of £515,600.

(3) A life assurance policy on his own life. Proceeds of £210,000 were received from the insurance company following Jimmy’s death.

Funeral costs amounted to £5,600. Under the terms of his will, Jimmy left £300,000 to his wife, with the residue of his estate to his nephew. The nil rate band in tax years 2019-20 and 2020-21 was £325,000.

Required:

(a) Explain why it is important to differentiate between potentially exempt transfers and chargeable lifetime transfers for inheritance tax purposes.

(b) Calculate the inheritance tax payable as a result of Jimmy’s death.