ACCA Strategic Professional · Advanced Taxation (UK)
Inheritance Tax Scope for ACCA ATX-UK
Inheritance tax applies to a chargeable transfer of value: a gratuitous act that reduces the value of the transferor's estate. You solve scope questions by finding the loss to the donor's estate, checking exemptions, then checking domicile and the property's location, and finally valuing the transfer. Then you apply the nil rate band and rates.
What this chapter covers
This chapter answers the first question in any inheritance tax (IHT) problem: is there a transfer that IHT can charge? You start with the idea of a transfer of value, which is a gift or other gratuitous act that reduces the value of the transferor's estate. The measure is the loss to the donor, not the gain to the recipient. You then sort transfers into exempt, potentially exempt transfers (PETs) and chargeable lifetime transfers (CLTs).
Next you test who and what IHT can reach. A person domiciled or deemed domiciled in the UK is taxed on worldwide assets. Others are taxed on UK assets only, and excluded property falls outside the charge. The chapter then covers the anti-avoidance rules: associated operations and gifts with reservation of benefit. It ends with related property and valuation, which fix the amount of the transfer.
This chapter feeds the rest of the paper. The rates and bands you apply later come from the tax tables: the nil rate band is £325,000, the residence nil rate band is £175,000, the lifetime rate is 20% and the death rate is 40%. Taper relief, trusts, and the interaction with capital gains tax (for example on gifts of business assets) all depend on getting scope right first. ATX Section A cases often mix IHT with income tax, CGT and corporation tax, so you need to spot the IHT issue quickly.
Scope errors carry through the whole IHT answer. If you misclassify a gift as a PET rather than a CLT, or ignore domicile, every later figure is wrong. Examiners reward a clear, structured explanation as well as the numbers, and ATX carries professional skills marks for analysis and advice. Scope also decides which tax planning options you can recommend, such as whether a gift with reservation defeats a client's plan. Time spent here pays off in IHT, trusts and personal tax questions.
Inheritance tax: the scope of inheritance tax: topics in the order to study them
- 1Chargeable Transfers and Transfers of ValueStart here because every other topic builds on the idea of a loss to the donor's estate.
- 2Exempt, Potentially Exempt and Chargeable TransfersOnce you can spot a transfer of value, you classify it, which decides when and whether tax arises.
- 3Domicile, Deemed Domicile and Excluded PropertyThis sets which assets IHT can reach, so it comes after you know what a transfer is.
- 4Associated Operations and Gifts with ReservationThese anti-avoidance rules modify the earlier rules, so learn them once the basics are secure.
- 5Related Property and Valuation of TransfersStudy valuation last because it quantifies the transfer after scope and classification are settled.
How to prepare Inheritance tax: the scope of inheritance tax
Treat this chapter as a decision sequence. Learn the order of questions, then practise applying it to scenarios.
- Write a one-page flowchart: is there a transfer of value, is it exempt, is it a PET or CLT, is the asset within scope, how is it valued.
- Learn the tax table figures you will use: nil rate band £325,000, lifetime rate 20%, death rate 40%. Practise finding them in the tables quickly.
- Practise the loss to the donor calculation: value of the estate before the gift minus value after, not the value received.
- Work through domicile and deemed domicile cases and state clearly which assets are within the charge for each person.
- Practise gifts with reservation and associated operations with short written explanations, since these are tested in words.
- Do past-style Section A and Section B questions under time. Always state the rule, apply it to the facts, then conclude.
- Finish by reviewing your answers for professional skills: clear structure, sensible advice and any assumptions stated.
Common mistakes in Inheritance tax: the scope of inheritance tax
Valuing a gift at what the recipient receives instead of the loss to the donor.
Fix: Always compute the estate before and after the gift. Include any related property effect and any tax the donor pays.
Treating every lifetime gift as chargeable.
Fix: Check exemptions first, then ask who receives the gift. Only then decide PET or CLT.
Ignoring domicile when the scenario involves overseas assets or a person who has lived abroad.
Fix: Underline residence and domicile facts when you read the question. State which assets are within the charge for each person.
Missing a gift with reservation when the donor keeps using the asset.
Fix: Ask in every gift: does the donor still enjoy the asset, and do they pay a full market rent or not?
Valuing a shareholding on its own when related property exists.
Fix: Check for related property first. Value the combined holding, then apportion the value to the share transferred.
Giving figures with no explanation of the rule.
Fix: For each point write the rule, apply it to the facts and give a conclusion. This earns technical and professional skills marks.
Last-day revision: Inheritance tax: the scope of inheritance tax
- A transfer of value is a gratuitous act that reduces the transferor's estate; measure the loss to the donor.
- Transfers can be exempt, a PET or a CLT; most gifts to individuals are PETs.
- The nil rate band is £325,000 and the residence nil rate band is £175,000.
- Excess over the nil rate band is taxed at 20% on lifetime transfers and 40% on death.
- Taper relief reduces the death tax payable on a chargeable gift (a PET that becomes chargeable, or a CLT) made more than 3 but less than 7 years before death, and only where cumulative transfers exceed the nil rate band.
- A UK domiciled or deemed domiciled person is charged on worldwide assets; others only on UK assets.
- Excluded property is outside the IHT charge.
- If the donor still enjoys a benefit from a gifted asset at death, the asset is treated as part of the donor's death estate, valued at its value at death. Double charge relief applies where relevant, so the same gift is not taxed twice. If the reservation ends in the donor's lifetime, the donor is treated as making a PET of the asset at that date.
- Associated operations can be treated as a single transfer when a series of steps achieves a gift.
- Related property, such as spouse's holdings, is valued together to set the value of the transferor's share.
- Show the before and after valuation clearly so you collect method marks.
- State the rule, apply it to the facts and conclude to earn professional skills marks.
Inheritance tax: the scope of inheritance tax practice questions
- Lena sold her shares to her brother for £10,000, though they were worth £60,000. A week earlier she had arranged with her brother that he wo…
- Tom made a PET of £500,000 in May 2020 and died in May 2026. He made no other transfers. His estate is large and the nil rate band of £325,0…
- Raj, UK domiciled, owns 80% of Kite Ltd, valued at £400,000 for the whole holding. A 60% holding would be worth £210,000. Raj gives a 20% ho…
- Mr Lowe gave his 15% shareholding in an unquoted company to his son in lifetime. Mrs Lowe holds 40% of the company. Mr Lowe's shares have va…
- Which of the following is correct on the valuation of property for inheritance tax on a transfer of value?
- Elena is UK domiciled and owns shares in a UK company worth £200,000 and a holiday flat in Spain worth £300,000. She gifts the Spanish flat …
- Priya made a gift of £50,000 cash to her adult son in June 2024. She is UK domiciled and the gift was not covered by any exemption. Which st…
Inheritance tax: the scope of inheritance tax in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Inheritance tax: the scope of inheritance tax: frequently asked questions
What is a transfer of value for inheritance tax?
It is a gratuitous disposition that reduces the value of the transferor's estate. The amount is the fall in the donor's estate, not the amount the recipient gains. Some transfers are exempt or fall outside the charge.
What is the difference between a PET and a CLT?
A PET is a lifetime gift to an individual that becomes exempt if the donor survives seven years. A CLT is a lifetime transfer that is not exempt or a PET, such as a gift into most trusts or to a company. It is tested against the nil rate band at once and charged at the lifetime rate of 20% on any excess.
Do I need to memorise the IHT rates and bands?
The tax tables are provided in the exam, including the nil rate band, residence nil rate band, rates and taper relief. You should know where to find them and how to use them. Spend your revision time on applying the rules.
Why does domicile matter in ATX?
A person who is UK domiciled or deemed domiciled is chargeable on worldwide assets. Others are chargeable only on UK assets, and excluded property is outside the charge. You must state the status and its effect on the assets in the question.
How is related property valued?
Related property is valued by combining the holdings of spouses or civil partners, and some charity-held property, to find the value of the transferor's share. This can increase the loss to the donor's estate. Check for it whenever a gift involves shares or land held by a couple.