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Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

IHT Payment, Interest, Liability and Tax Planning for ACCA ATX

Updated 11 October 2026 · Fact-checked

IHT must be paid by set dates: for lifetime chargeable transfers, 30 April after the tax year if made 6 April to 30 September, otherwise six months after the month end; on death, six months after the month end. Know who is liable, when instalments apply, and charge interest at 8.50% on late tax.

Understand IHT Payment, Interest, Liability and Tax Planning

IHT only matters in the exam when you can say who pays, when, and how much extra it costs if late. Computing the tax is half the answer. The other half is the cash flow.

The due date depends on the event. For a chargeable lifetime transfer (CLT) made between 6 April and 30 September, tax is due on 30 April in the following year. For a CLT made between 1 October and 5 April, tax is due six months after the end of the month of the gift. On death, tax on the estate is due six months after the end of the month of death. Extra tax on lifetime gifts caused by death within seven years is also due six months after the end of the month of death.

Liability follows the event. On a CLT, the donor is primarily liable, and the trustees or donee can be liable if the donor does not pay. On a PET that becomes chargeable, the donee is liable. On death, the personal representatives pay tax on the estate. Always say which person pays, because it also decides whether you gross up a CLT.

Interest runs from the due date on unpaid tax. The tables give 8.50% on underpaid tax and 3.50% on overpaid tax. For qualifying assets, such as land, certain shares and business property, tax can be paid in ten equal annual instalments. On a lifetime transfer, the option is available on qualifying assets for a CLT where the donee or trustees bear the tax, and for a PET that becomes chargeable. It is also available for tax arising because of death. The first instalment falls due on the normal due date. Interest is charged on instalments only for certain assets, so check the type of asset. The supplied tax tables do not cover this point, so rely on the facts given in the question.

Planning links IHT to CGT. A lifetime gift is a disposal for CGT at market value, so you can create a CGT bill and an IHT charge on the same gift. Gift holdover relief can defer the gain, but only where the gift qualifies, such as business assets or a CLT. On death there is no CGT, and the assets are normally revalued to their value at death. Good advice weighs both taxes.

Key rules to remember

CLT due date
6 April to 30 September: 30 April following. 1 October to 5 April: six months after end of month of gift
Tax on the CLT itself. State the date as a calendar date in your answer.
Death due date
Six months after the end of the month of death
Applies to the estate and to additional tax on gifts made within seven years before death.
Interest on late tax
Tax × 8.50% × months late ÷ 12
Rate on underpaid tax from the tax tables. Overpaid tax earns 3.50%. Interest runs from the due date.
Rates and nil rate band
NRB £325,000; RNRB £175,000; lifetime 20%; death 40%
Tax applies to the excess over the nil rate band. The RNRB is only available in the stated conditions, so check the question.
Grossing up a lifetime CLT
Tax = excess net transfer × 20 ÷ 80
Use when the donor pays the tax. If the donee pays, tax is 20% of the excess.
Taper relief on death
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 in the death tax
The reduction is to the tax, not the value. It applies only where tax is payable on the gift. Use the band that matches the exact period between gift and death.
Instalment option
Ten equal annual instalments, first on the normal due date
Available only for qualifying assets. It applies to a CLT where the donee or trustees bear the tax, to a PET that becomes chargeable, and to tax arising on death. Interest is charged on instalments only for certain assets. This point is not in the supplied tax tables.
CGT on gifts
Gain = market value less cost; CGT 18% or 24% after the £3,000 annual exempt amount
Business asset disposal relief at 14% may apply to a qualifying business disposal. Holdover relief, where available, defers the gain and cuts the donee's base cost.

How to solve IHT Payment, Interest, Liability and Tax Planning questions

Use this order for any question on payment, liability, interest or planning for IHT.

  1. 1Identify each event: a CLT, a PET, or a death. Note the exact date.
  2. 2Work out the tax first: apply the nil rate band, then 20% lifetime or 40% death, with taper relief where it applies.
  3. 3Decide who pays. Donor or donee on a lifetime gift, or personal representatives on death. Gross up a CLT only if the donor pays.
  4. 4Give the due date as a calendar date, using the correct rule for the date of gift or death.
  5. 5If payment is late, compute interest at 8.50% from the due date to the payment date. Use whole months and a ÷ 12 fraction.
  6. 6Check whether instalments are available for the asset, and say how many and when.
  7. 7For planning, compare IHT with CGT for each option, including the effect of holdover relief or the revaluation on death.
  8. 8Finish with a clear recommendation and the cash flow effect.

Quickest way: Four-line payment check

When to use it: Use when the question asks only for due dates, liability or interest, not a full computation.

  1. Write the date of event and the type.
  2. Write the due date as a calendar date.
  3. Write the person liable.
  4. If late, multiply the tax by 8.50% and by months ÷ 12.

Common mistakes in IHT Payment, Interest, Liability and Tax Planning

  • Using the death rule for a CLT due date

    Students remember six months and apply it everywhere.

    Fix: For a CLT, check the month of gift first. A gift between 6 April and 30 September is due the next 30 April.

  • Grossing up when the donee pays

    Students apply 20 ÷ 80 automatically on every CLT.

    Fix: Gross up only where the donor pays. If the donee bears the tax, use 20% of the excess.

  • Naming the wrong person as liable

    Students forget that liability changes when a PET becomes chargeable.

    Fix: Use donor for the CLT, donee for a PET that becomes chargeable and personal representatives for the estate.

  • Treating taper relief as reducing the gift value

    Students confuse it with relief on the transfer itself.

    Fix: Taper relief reduces the death tax on the gift. The gift still uses nil rate band in full.

  • Ignoring CGT on lifetime gifts

    Students focus on IHT because that is the chapter.

    Fix: Always ask if a gain arises and whether holdover relief is available. Holdover applies to qualifying business assets and to any asset given in a CLT. It is not available on a PET of a non-business asset. If business asset disposal relief applies to a qualifying business disposal, the gain is taxed at 14%.

  • Computing interest from the date of death or gift

    Students start interest from the event date rather than from the due date.

    Fix: Interest starts from the due date, not the date of the event.

Worked examples

Example 1

Anna makes a gift of £400,000 to a trust on 10 December 2025 after exemptions. She has made no earlier transfers and pays the tax herself. Calculate the IHT, state the due date, and calculate interest if she pays on 31 August 2026. Nil rate band £325,000.

Show the solution
  1. The gift is a CLT. Anna pays, so the £400,000 is the net transfer and must be grossed up.
  2. Excess over nil rate band: £400,000 − £325,000 = £75,000.
  3. Tax = £75,000 × 20 ÷ 80 = £18,750.
  4. Due date: the gift was made between 1 October and 5 April, so it is due six months after the end of December 2025, which is 30 June 2026.
  5. Payment on 31 August 2026 is two months late.
  6. Interest = £18,750 × 8.50% × 2 ÷ 12 = £266 (to the nearest £).

Answer: IHT is £18,750, due 30 June 2026. Interest for two months late is £266.

Example 2

Ben dies on 15 March 2026. His estate is £600,000 and passes to his nephew, so no residence nil rate band applies. On 10 June 2021 he gave his daughter £500,000, a PET, after exemptions. He has made no other transfers. Calculate the IHT on the PET and on the estate, say who pays and when, and calculate interest if the estate tax is paid on 30 November 2026. Nil rate band £325,000.

Show the solution
  1. Ben died within seven years of the PET, so it becomes chargeable. It uses the nil rate band first because it is the earliest transfer.
  2. Tax on the PET before taper: (£500,000 − £325,000) = £175,000 × 40% = £70,000.
  3. Time between gift and death: 10 June 2021 to 15 March 2026 is more than 4 but less than 5 years, so taper relief is 40%.
  4. Tax on the PET after taper: £70,000 × (100% − 40%) = £42,000. The daughter pays it.
  5. The nil rate band is fully used by the PET, so the estate has none left. Estate tax: £600,000 × 40% = £240,000. The personal representatives pay it.
  6. Due date for both: six months after the end of March 2026, which is 30 September 2026.
  7. Estate tax paid 30 November 2026 is two months late. Interest = £240,000 × 8.50% × 2 ÷ 12 = £3,400.

Answer: PET tax £42,000, paid by the daughter, and estate tax £240,000, paid by the personal representatives. Both are due 30 September 2026. Interest on late estate tax is £3,400.

Exam tips

  • Write due dates as calendar dates, not as a rule. The marker wants a date.
  • State who pays on every line. It earns an easy mark and sets whether you gross up.
  • Use the interest rate printed in the tax tables. Show tax × rate × months ÷ 12.
  • In planning questions, give IHT and CGT effects together and then recommend one option.
  • Link advice to the client's objectives, such as passing on a business or keeping control. Do not just list reliefs.

Practice questions from Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

IHT Payment, Interest, Liability and Tax Planning in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IHT Payment, Interest, Liability and Tax Planning: frequently asked questions

When is IHT due on a lifetime gift?

Tax on a CLT is due on 30 April after the tax year if the gift is made between 6 April and 30 September. For a gift from 1 October to 5 April, it is due six months after the end of the month of gift. Extra tax on death within seven years is due six months after the end of the month of death.

What interest rate applies to unpaid IHT in ATX?

Use the rate on underpaid tax in the ACCA tables, which is 8.50%. Interest runs from the due date to the date of payment. Overpaid tax earns 3.50%.

Can I claim holdover relief on a lifetime gift?

Gift holdover relief is available on gifts of qualifying business assets, and on any asset given in a CLT. It is not generally available on a PET of a non-business asset. Where no holdover applies, the gain is taxed at 18% or 24% after the £3,000 annual exempt amount. If business asset disposal relief applies to a qualifying business disposal, the rate is 14%.

How do I reduce IHT in an exam answer?

Use exemptions, make gifts early so they become exempt after seven years, and use the nil rate band regularly. Consider spouse and charity exemptions and a deed of variation after death. Always check the CGT cost of any lifetime gift before recommending it.