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

IHT Scope, Transfers of Value and Domicile for ACCA ATX-UK

Updated 11 October 2026 · Fact-checked

A transfer of value is a gift or other act that reduces the value of your estate. It is exempt, a PET or a chargeable lifetime transfer (CLT). Which assets IHT reaches depends on whether you are a long-term UK resident. Non-UK assets of others are usually excluded property.

Understand IHT Scope, Transfers of Value and Domicile

Inheritance tax (IHT) charges tax on a fall in the value of a person's estate caused by a gift, and on the estate at death. The starting point is the transfer of value: an act that makes the transferor's estate worth less. The measure is the loss to the donor, not the gain to the donee. This is the loss to donor principle.

Once you have a transfer of value, classify it. An exempt transfer (for example to a spouse or civil partner, or covered by an annual exemption) has no IHT. A potentially exempt transfer (PET) is a lifetime gift by an individual to another individual (or to certain trusts). It is exempt if the donor survives seven years. A chargeable lifetime transfer (CLT) is a lifetime transfer that is not exempt or a PET. The main example is a gift into a discretionary trust. A CLT is taxed at once at the lifetime rate on the excess over the nil rate band.

The rates you are given are: nil rate band £325,000, residence nil rate band £175,000, lifetime rate 20% and death rate 40%. Taper relief reduces the tax (not the value) on transfers made more than three but less than seven years before death.

Scope depends on the person and the asset. The ATX-UK tax tables do not define domicile or long-term residence, so learn those rules. Broadly, an individual who is UK domiciled or deemed domiciled (including a long-term UK resident) is within IHT on worldwide assets. Someone who is neither is within IHT on UK assets only. Non-UK assets of a person who is not UK domiciled or deemed domiciled are excluded property and are ignored.

Long-term UK residence is a residence-based test. In general, you become a long-term UK resident after being UK resident for a set number of the previous tax years. Check the exact numbers in your study text and apply them carefully. Residence in each year comes from the statutory residence test, whose day-count and UK ties table is given in the exam.

Key rules to remember

Transfer of value (loss to donor): Transfer = value of estate before − value of estate after; Measure the fall in the donor's estate, not the value received. Related property and associated costs can make the loss larger than the asset's own value.
Classification of lifetime transfers: Exempt → no IHT; PET → tax only if donor dies within 7 years; CLT → tax now at 20% above nil rate band; A PET is a gift to an individual. A gift into a discretionary trust is typically a CLT.
IHT rates and bands (given in the exam): Nil rate band £325,000; residence nil rate band £175,000; lifetime rate 20%; death rate 40%; The residence nil rate band applies on death only, and only where its conditions are met.
Taper relief (given in the exam): 3–4 yrs 20%; 4–5 yrs 40%; 5–6 yrs 60%; 6–7 yrs 80% reduction; The reduction applies to the tax, and only where the transfer exceeds the nil rate band. Death within 3 years gets no relief.
Scope by domicile status: UK domiciled / deemed domiciled (incl. long-term UK resident) → worldwide assets; otherwise → UK assets only; Non-UK assets of a person outside this category are excluded property.

How to solve IHT Scope, Transfers of Value and Domicile questions

Use this order for any scope or transfer question. It stops you applying the rates before you know whether there is a charge at all.

1Identify the transferor and the donee. Note whether the donee is an individual, a spouse or civil partner, a charity or a trust.
2Decide if there is a transfer of value. Calculate the fall in the donor's estate, including any related costs borne by the donor.
3Classify it: exempt, PET or CLT. Check for exemptions first, such as spouse, charity and annual exemptions.
4Test scope. Decide whether the donor is UK domiciled, deemed domiciled or long-term UK resident. List which assets fall within the charge.
5Remove excluded property. Ignore non-UK assets of a person who is not UK domiciled or deemed domiciled.
6Apply the nil rate band and rates only to chargeable amounts, and consider taper relief if death occurred within seven years.
7State your conclusion in plain words for the client, and note any assumptions.

Quickest way: Three-question scope check

When to use it: Use it when a scenario gives an individual with overseas links and several gifts, and you need a fast first pass.

Question 1: Is the donor within worldwide IHT? Check domicile, then deemed domicile and long-term residence.
Question 2: For each gift, who receives it? Individual means PET, trust usually means CLT, spouse or charity means exempt.
Question 3: Did the donor lose estate value? If yes, measure the loss, deduct exemptions, and only then apply the tax tables.

Common mistakes in IHT Scope, Transfers of Value and Domicile

Measuring the transfer by the value the donee receives.
Students think of gifts as gains, as in CGT or income tax.
Fix: Always compare the donor's estate before and after. Check for related property or costs the donor pays.
Calling every lifetime gift a PET.
PETs are the most common gift in textbook questions.
Fix: Check the donee first. A gift into a discretionary trust is typically a CLT and is taxed immediately at 20% above the nil rate band.
Taxing non-UK assets of a person who is not UK domiciled or deemed domiciled.
Students forget that scope depends on the person's status.
Fix: Decide status before listing assets. Mark non-UK assets as excluded property where status does not bring them in.
Ignoring long-term UK residence when someone has left the UK or lives abroad.
Domicile is learned as a single concept, so residence history is overlooked.
Fix: Always check years of UK residence. Use the statutory residence test table given in the exam to decide residence for each year.
Applying taper relief to the value of the gift or to gifts within three years of death.
The table looks like a value reduction and the bands are easy to misread.
Fix: Taper relief reduces the tax. Death within three years of the gift gets nothing. Use the reduction percentages in the table.

Worked examples

Example 1

Priya, UK domiciled, owns a house in Leeds worth £500,000 and a flat in Spain worth £200,000. She gives £60,000 cash to her adult son and £400,000 cash into a discretionary trust. Ignoring exemptions, classify each gift and state the amount of tax due now, assuming no earlier transfers.

Show the solution

Both gifts reduce Priya's estate, so each is a transfer of value: £60,000 and £400,000.
The gift to her son is to an individual, so it is a PET. No tax is due now.
The gift into a discretionary trust is a CLT, taxed at once.
The CLT is £400,000. Nil rate band is £325,000.
Excess = £400,000 − £325,000 = £75,000.
Lifetime tax at 20% = £75,000 × 20% = £15,000. This is the tax if the trustees pay, with no grossing up.

Answer: The £60,000 gift is a PET with no tax now. The £400,000 gift is a CLT with tax of £15,000 if the trustees pay it. Priya is UK domiciled, so her worldwide assets, including the Spanish flat, are within IHT.

Example 2

Ahmed is not UK domiciled. He has just become a long-term UK resident under the residence-based rules. He owns UK shares worth £150,000 and a US portfolio worth £300,000. He dies and these are his only assets, ignoring reliefs and the residence nil rate band. State which assets are within IHT and compute the death tax.

Show the solution

Long-term UK residents are treated as deemed domiciled. So Ahmed is within IHT on worldwide assets.
The US portfolio is therefore not excluded property. Total estate = £150,000 + £300,000 = £450,000.
Nil rate band = £325,000. Excess = £450,000 − £325,000 = £125,000.
Death rate is 40%. Tax = £125,000 × 40% = £50,000.

Answer: Both assets are within IHT because Ahmed is deemed domiciled as a long-term UK resident. Death tax is £50,000. If he were not deemed domiciled, only the £150,000 UK shares would be chargeable, so there would be no tax.

Exam tips

Write a one-line status conclusion first (UK domiciled, deemed domiciled or not). Marks are given for the reasoning and later answers depend on it.
Show the classification of each gift in a short table of donee, type and tax now. It earns easy marks and makes your professional skills visible.
Use the tax tables given in the exam. Do not rely on memory for the nil rate band, rates or taper percentages.
State assumptions clearly when facts are missing, such as earlier transfers or the donor's residence history.
Finish with a short client-facing conclusion. Plain language about what is taxed now and what may be taxed later scores well.

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

IHT Scope, Transfers of Value and Domicile: frequently asked questions

What is the difference between a PET and a chargeable lifetime transfer?

A PET is a lifetime gift by an individual to another individual. It is exempt if the donor survives seven years. A CLT is a lifetime transfer that is not exempt or a PET, typically a gift into a discretionary trust, and it is taxed at 20% above the nil rate band when made.

What is a transfer of value for IHT?

It is an act that reduces the value of the donor's estate. The amount is the fall in the donor's estate, not what the recipient receives. Exemptions are then deducted.

How does domicile affect inheritance tax?

UK domiciled and deemed domiciled individuals are chargeable on worldwide assets. Others are chargeable only on UK assets, and their non-UK assets are excluded property.

Does a long-term UK resident pay IHT on overseas assets?

Yes. A long-term UK resident is treated as deemed domiciled, so their worldwide assets are within IHT. Check the number of UK residence years in your study text and use the statutory residence test to decide each year.