The liabilities arising on chargeable lifetime transfers and on the death of an individual: formula sheet

Key formulas

Nil rate band

NRB = £325,000

Given in the tax tables. Reduced by chargeable transfers made in the previous seven years.

Available NRB

Available NRB = £325,000 − chargeable transfers in the 7 years before the transfer

Use the NRB for the year of the transfer, which is the figure in your tables.

Lifetime rate

Tax = 20% × (chargeable value − available NRB)

Applies to chargeable lifetime transfers. This is the rate when the donor pays the tax.

Death rate

Tax = 40% × (taxable value − available NRB)

Applies to the death estate and to lifetime transfers taxed on death.

Reduced death rate

Tax = 36% × (taxable value − available NRB)

Applies where at least 10% of the baseline amount is left to charity. Taper relief reduces the tax on lifetime gifts, not the rate.

Residence nil rate band

RNRB = £175,000

Given in the tables. It is added to the NRB on death only if the conditions are met.

Nil rate band and rates on death

NRB £325,000; RNRB £175,000; death rate 40%; lifetime rate 20%

These figures are in the ACCA tax tables. Tax on death is 40% × (chargeable estate – bands available).

RNRB available

Lower of (RNRB incl. any transfer) and (value of home passing to direct descendants)

Use the net value of the home after any debt secured on it. The RNRB only applies on death.

RNRB taper

Reduction = (Estate value – £2,000,000) ÷ 2

Applies only if the estate is over £2,000,000. The estate value is after liabilities but before reliefs and exemptions. Take the reduction off the RNRB, including any transferred amount. The result cannot go below nil.

Unused percentage at first death

Unused % = (Band – band used) ÷ Band × 100

Work out one percentage for the NRB and a separate one for the RNRB.

Transferred band at second death

Band available = Band at second death × (100% + unused %)

The unused % is applied to the band in force at the second death, not the first. The increase is capped at 100%, so the band available is at most 200% of the band.

Spouse exemption link

Transfers to a UK-domiciled spouse or civil partner are exempt

The unused band percentage is what lets the survivor use the first spouse's allowances.

Nil rate band and rates

NRB £325,000; lifetime rate 20%; death rate 40%

Given in the ACCA tax rates and allowances. The lifetime rate applies only to the excess over the available NRB.

Chargeable amount before tax

Gift (loss to donor) − annual exemptions (£3,000 for the year, plus any unused amount from the previous year) = net chargeable gift

Deduct exemptions first, current year before the previous year. They are deducted from the net gift, before any grossing up.

Available NRB

£325,000 − chargeable transfers in the seven years before the gift

Include earlier CLTs at their gross values. Include PETs in the window only if they have become chargeable because the donor died within seven years.

Tax when donee pays

20% × (net chargeable gift − available NRB)

No grossing up. If the gift is within the NRB, tax is nil.

Gross up when donor pays

Gross chargeable transfer = available NRB + (net gift − available NRB) × 100 ÷ 80; tax = 20% × (net gift − available NRB) × 100 ÷ 80

Check: net gift + tax = gross chargeable transfer.

Additional tax on death within seven years

[40% × (gross CLT − NRB available at the gift)] × (1 − taper %) − lifetime tax paid, minimum nil

Taper relief reduces the tax. It does not reduce the value.

Taper relief

3–4 years 20%; 4–5 years 40%; 5–6 years 60%; 6–7 years 80%

Reduction in tax. Death within three years gets no relief. The bands are 'more than' the lower figure and 'less than' the upper figure.

Seven-year rule

PET chargeable only if donor dies within 7 years of the gift

If the donor survives seven years, the PET is fully exempt.

Tax on failed PET

Tax before taper = (Gift after exemptions − available nil rate band) × 40%, where available nil rate band = £325,000 − chargeable transfers in the 7 years before the gift (not below nil)

Compute the tax on the failed PET only. Do not add earlier chargeable transfers into the gift. They only reduce the nil rate band, which is £325,000 less earlier chargeable transfers in the seven years before the gift. If earlier transfers already equal or exceed £325,000, the available band is nil and the whole gift is taxed.

Taper relief

Tax payable = Tax before taper × (100% − reduction %)

Reduction: 0–3 years nil; 3–4 years 20%; 4–5 years 40%; 5–6 years 60%; 6–7 years 80%.

Death rate and lifetime rate

Death 40%; lifetime 20%

A failed PET always uses the 40% death rate.

Annual exemption

£3,000 per tax year, plus unused amount from the previous year

Deduct from the gift first. Apply to the earliest gift in the year. This is the standard ACCA rule; it is not in the rates table, so check the question.

Chargeable estate

Assets at market value at death − liabilities and funeral costs − exempt transfers (spouse, charity) − reliefs (BPR, APR)

Spouse exemption applies in full only where the spouse is UK-domiciled. Check the domicile.

Death rate and nil rate band

IHT on estate = (chargeable estate − NRB remaining − RNRB available) × 40%

The NRB is £325,000 and the RNRB is £175,000. Use only the NRB remaining after earlier gifts.

NRB remaining for the estate

£325,000 − chargeable transfers in the 7 years before death (PETs and CLTs, in date order, after exemptions)

Add any NRB transferred from a deceased spouse or civil partner.

Tax on a PET or CLT that fails at death

(gift after exemptions − NRB available at that date) × 40%, then reduced by taper relief, less lifetime IHT paid

The NRB available at that date is £325,000 less chargeable transfers in the 7 years before that gift. Taper relief reduces the tax, not the gift value. Tax is never refunded.

Taper relief (years between gift and death)

3–4 years: 20% | 4–5: 40% | 5–6: 60% | 6–7: 80%

Under 3 years: no reduction. Over 7 years: no tax.

RNRB restriction

RNRB reduced by £1 for every £2 the estate exceeds £2,000,000

The RNRB is the lower of the home value passing to descendants and the RNRB available.

Lifetime CLT made 6 April to 30 September

Due date = 30 April in the following tax year

Example: CLT on 10 June 2025 is due 30 April 2026.

Lifetime CLT made 1 October to 5 April

Due date = 6 months after the end of the month of the transfer

Example: CLT on 20 November 2025 is due 31 May 2026.

Additional tax on death within 7 years (CLT or PET)

Due date = 6 months after the end of the month of death

This applies to both tax on failed PETs and extra tax on CLTs.

Tax on the death estate

Due date = 6 months after the end of the month of death

Interest runs from this date even if the estate is not yet fully administered.

Tax rates (as provided in the exam)

Nil rate band £325,000; lifetime rate 20%; death rate 40%

The residence nil rate band is £175,000 and applies only to the death estate.

Taper relief (reduction in the tax)

3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80%

There is no reduction if death is within 3 years. It reduces the tax, not the value.

Primary liability

CLT: donor (or trustees). PET: donee. Death estate: personal representatives

Trustees pay additional death tax on a CLT. Secondary liability falls on others if the primary person does not pay.

CGT on a gift

Gain = market value at date of gift − cost − allowable costs

A gift is a disposal at market value. Then deduct the annual exempt amount of £3,000 and any reliefs.

Gift holdover relief

Pure gift: held-over gain = whole gain. Part-gift: held-over gain = gain − chargeable excess, where chargeable excess = proceeds received − cost (if positive, and not more than the gain). Donee base cost = market value − held-over gain

Available only for gifts of business assets, or gifts that are immediately chargeable to IHT. Donor and donee must jointly elect. The donor's CGT on the held-over gain is nil. Any chargeable excess is taxed on the donor in the normal way.

Death and CGT

No CGT on death; beneficiary's base cost = market value at date of death

The uplift removes the gain. Unused capital losses cannot be passed to beneficiaries, but losses arising in the year of death can be carried back against gains of the previous three years.

CGT rates

Lower rate 18%; higher rate 24%; BADR and investors' relief 14%

The annual exempt amount is £3,000. The lifetime limit for BADR is £1,000,000. Use the rates in the exam tax tables.

IHT rates

Nil rate band £325,000; residence nil rate band £175,000; lifetime rate 20%; death rate 40%

Lifetime tax applies to CLTs above the nil rate band. Death tax applies to the estate and to PETs and CLTs within seven years of death.

Taper relief

Reduction in tax: more than 3 but less than 4 years 20%; more than 4 but less than 5 years 40%; more than 5 but less than 6 years 60%; more than 6 but less than 7 years 80%

There is no relief if death is within three years of the gift. It reduces the tax on a gift, not the value of the gift. It helps only where tax is payable on that gift. That depends on the nil rate band left after earlier chargeable transfers in the seven years before the gift.

ISA and IHT

ISA value at death is part of the death estate

The ISA wrapper gives no IHT exemption, and it ceases on death.

Quick revision

• Nil rate band is £325,000; the residence nil rate band is £175,000 and is only available in the right circumstances on death.
• Lifetime rate on a CLT above the band is 20%; the death rate is 40%.
• A CLT is usually a gift into a trust or to a company; a PET is a gift to an individual (or to certain trusts). Both are tested for exemptions first.
• A PET is exempt if the donor survives seven years; if not, it becomes chargeable at death rates.
• CLTs are cumulated over the previous seven years to see how much nil rate band is left.
• If the donor pays the lifetime tax, the gift is a net amount and you gross it up at 20%.
• Taper relief only reduces tax, not the value of the gift, and only applies if tax is payable on that gift. Relief starts only when death is more than three years after the gift.
• Taper relief table (years between gift and death): three years or less: no relief; more than 3 but less than 4 years 20%; more than 4 but less than 5 years 40%; more than 5 but less than 6 years 60%; more than 6 but less than 7 years 80% reduction.
• Gifts made in the seven years before death use up the nil rate band before the death estate does.
• On death, tax on the estate is paid by the personal representatives. Additional tax on a PET because of death is paid by the donee. Additional tax on a CLT because of death is paid by the trustees where the gift was into trust. The personal representatives are liable for the additional tax only if it remains unpaid.
• IHT on the death estate and on lifetime transfers made within seven years of death is due six months after the end of the month of death.
• Lifetime tax on a CLT made between 6 April and 30 September is due on 30 April in the following tax year. For a CLT made between 1 October and 5 April, it is due six months after the end of the month of the gift.
• A gift of an asset can also trigger CGT; assets held at death are not charged to CGT, and ISAs get no IHT relief.

Common mistakes

• Using the full £325,000 each time Fix: Deduct chargeable transfers made in the previous seven years first. Only the remainder is available.
• Applying 40% to a lifetime transfer Fix: Tie the rate to the event. Lifetime chargeable transfer is 20%. Death is 40%.
• Applying the £2,000,000 taper to the nil rate band as well as the RNRB. Fix: The taper only reduces the RNRB. The £325,000 NRB is never tapered.
• Giving the full RNRB when the home goes to a nephew, friend or charity. Fix: The home must pass to direct descendants. Check who inherits before claiming any RNRB.
• Grossing up the whole gift instead of only the excess over the NRB. Fix: Subtract the available NRB first. Gross up only the excess, then add the NRB back to get the gross transfer.
• Forgetting the annual exemptions, or taking them after grossing up. Fix: Deduct the £3,000 exemption for the year (and the previous year if unused) from the gift first. Do this before the NRB and before any grossing up.
• Applying taper relief to the value of the gift instead of the tax Fix: Work out the tax first, then reduce the tax by the taper percentage.
• Giving taper relief for death within three years Fix: The first reduction starts only when death is more than three years after the gift.
• Giving the death estate the full £325,000 NRB when failed PETs or CLTs exist. Fix: Do the gifts first. The estate gets only the NRB left over.
• Applying taper relief to the value of the gift instead of to the tax. Fix: Use the NRB first, calculate 40% on the excess, then reduce that tax by the taper percentage.

Exam tips

• Check the tax tables in the exam for the NRB, rates and taper figures. You must still know how to use them.
• Show the NRB deduction as its own line. Marks are awarded for the band calculation even if the final tax is wrong.
• In a multi-gift question, set out the gifts in date order and keep a running total of band used.
• Read the question for the words 'lifetime' and 'on death'. They decide the rate.
• For objective tests, a wrong rate usually makes one distractor. Compute the figure yourself before you look at the options.
• Read who inherits the home first. This often decides whether the RNRB is available.
• Always show the taper calculation separately. Even if the final figure is wrong, you earn method marks.
• For a transfer from a spouse, turn the unused amount into a percentage first, then apply it to the current band.