Advanced Taxation (UK) · Inheritance tax: the use of exemptions and reliefs in deferring and minimising inheritance tax liabilities

Death Estate Computation and Reliefs on Death for ACCA ATX

Updated 11 October 2026 · Fact-checked

The death estate is everything the person owned at death, valued at market value, less debts and funeral costs and less exempt gifts to a spouse or charity. Tax is 40% on the excess over the nil rate bands left after lifetime gifts, then reduced by quick succession relief. Gifts made in the last seven years are taxed first.

Understand Death Estate Computation and Reliefs on Death

Inheritance tax (IHT) on death has two layers. First, lifetime gifts made in the seven years before death may become taxable or taxed again at death rates. Second, the death estate itself is taxed. You must deal with them in that order, because the gifts use up the nil rate band before the estate can.

The death estate is all assets owned at the moment of death, at market value, less allowable liabilities and funeral expenses. Add any assets over which the deceased had a gift with reservation. Then remove anything that passes to an exempt beneficiary.

Two exemptions matter most. Transfers to a spouse or civil partner are exempt without limit, unless the transferor is a long-term UK resident and the recipient is not. In that case the exemption is capped, so check the figure given in the question. Transfers to UK charities are exempt without limit. A reduced death rate of 36% applies if at least 10% of the baseline amount goes to charity. The 36% rate and the 10% test come from legislation and the syllabus. They are not in the tax tables reproduced in the exam, so you must learn them.

The tax is charged at the death rate of 40% on the chargeable estate above the available nil rate band (£325,000). The residence nil rate band (£175,000) is added if a main residence passes to direct descendants. Unused bands of a late spouse can be transferred. Any nil rate band used by chargeable lifetime transfers in the seven years before death is no longer available to the estate.

Quick succession relief (QSR) helps where the deceased's estate was increased by a chargeable transfer in the five years before death. It reduces the tax on the estate to reflect tax already paid on the same value. Lifetime gifts that become chargeable at death also face extra tax, but taper relief reduces the tax if death is more than three years after the gift.

Key rules to remember

Nil rate band and rates: NRB £325,000; death rate 40%; lifetime rate 20%; These figures are in the ATX tax tables (inheritance tax table). Remaining NRB = £325,000 less chargeable transfers in the seven years before death.
Residence nil rate band: RNRB up to £175,000; The £175,000 is given in the tax tables. Needs a main residence passing to direct descendants. It is tapered away for large estates: the RNRB falls by £1 for every £2 by which the net estate exceeds £2,000,000. That taper rule is not in the tax tables, so learn it. Unused RNRB of a late spouse may be claimed. Check the question for the figures.
Taper relief on tax: 3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80% reduction; Applies to the tax on the gift, not to its value. No relief if death is within three years. Tax cannot fall below the lifetime tax paid, and there is no refund.
Additional tax on a gift at death: Death tax (after taper) − lifetime tax paid, minimum nil; For a CLT, compare with the lifetime tax paid. A PET that becomes chargeable has no lifetime tax.
Quick succession relief: QSR = % × tax on earlier transfer × (net transfer ÷ gross transfer); % depends on the time between the transfer and death: under 1 year 100%; 1-2 years 80%; 2-3 years 60%; 3-4 years 40%; 4-5 years 20%. These percentages come from the syllabus and legislation. They are not in the tax tables, so learn them.
Charity reduced rate: 36% if charity gets at least 10% of the baseline amount; The 36% rate and the 10% test are not in the exam tax tables, so you must learn them. Baseline = estate after other exemptions and liabilities, less the available nil rate band. Test this when a charitable legacy is large.
Order of charging: Lifetime transfers (earliest first) then death estate; Each gift uses the nil rate band before later gifts and the estate.

How to solve Death Estate Computation and Reliefs on Death questions

Use this order for any death computation. It stops you using the nil rate band twice.

1List the lifetime transfers in the seven years before death in date order. Show whether each is a CLT or a PET, and its value after exemptions.
2For each, look back seven years from its date to find earlier chargeable transfers. Compute the NRB available and the tax at the 40% death rate on the excess.
3Apply taper relief to that tax by years between gift and death. Deduct lifetime tax paid. The extra tax is never below nil.
4Work out the NRB left for the estate: £325,000 less the gross chargeable transfers in the seven years before death, minimum nil. Add any transferred NRB.
5Value the estate at death: assets at market value, less debts and funeral costs. Remove spouse and charity items. Test the 36% charity rate if there is a charity legacy.
6Compute the RNRB if a residence passes to direct descendants. Deduct the NRB and RNRB from the chargeable estate and multiply the excess by 40% or 36%.
7Deduct quick succession relief if the estate was increased by a chargeable transfer in the previous five years.
8State who pays: donees for gifts, personal representatives for the estate. Show the total tax.

Quickest way: Three-column death tax layout

When to use it: Use it when a question has several gifts plus an estate and time is short.

Draw a line of dates with the death date at the right and mark the seven-year window.
Write each gift with its value and the NRB left before it. Tax only the excess at 40%.
Apply taper relief percentage, then subtract lifetime tax. Write nil if negative.
Write the NRB used by gifts in total and subtract it from £325,000 for the estate.
Estate: gross, less liabilities, less exempt items, less NRB and RNRB, times the rate, less QSR. Label each line for method marks.

Common mistakes in Death Estate Computation and Reliefs on Death

Applying taper relief to the value of the gift instead of to the tax.
The table says percentage reduction, so students reduce the gift.
Fix: Compute the tax at 40% first, then reduce that tax by the taper percentage.
Giving the estate the full £325,000 nil rate band when lifetime gifts have used it.
Students treat the estate separately from the gifts.
Fix: Always work out gifts first, then deduct the gross chargeable transfers in the seven years before death from the NRB.
Forgetting that taper relief is nil when death is within three years, or using it on a gift that falls within the NRB.
Students apply the table by habit.
Fix: Check the years first. If the gift is covered by the NRB there is no tax to reduce.
Claiming a refund of lifetime tax when taper relief reduces the death tax below it.
Subtracting gives a negative number.
Fix: Extra tax is the higher of the difference and nil. Lifetime tax is never repaid.
Using net instead of gross in the QSR fraction, or the wrong percentage band.
The formula has several figures and the time bands are easy to mix up.
Fix: Write the fraction as net ÷ gross, count the years between the earlier transfer and death, and then choose the percentage.
Ignoring the 10% charity test or applying 36% without checking it.
Students notice a charity gift and apply the rate automatically.
Fix: Compute the baseline amount and 10% of it, then compare with the charity legacy.

Worked examples

Example 1

Alan died on 10 December 2025. On 1 June 2020 he made a gift of £400,000 (after exemptions) to a discretionary trust, which paid the lifetime tax. He made no other gifts. His estate at death was £700,000 after debts and funeral costs, of which £50,000 was left to a charity and the rest to his children. There is no residence nil rate band. Assume the NRB was £325,000 throughout. Compute the IHT due on the gift and on the estate.

Show the solution

Lifetime tax paid in 2020: the trust (the donee) paid the tax, so the £400,000 is the gross chargeable transfer and no grossing up is needed. Grossing up at 20/80 applies only when the donor pays the lifetime tax. Tax = (£400,000 − £325,000) × 20% = £15,000, paid by the trust.
Death was 5 years 6 months after the gift, so taper relief is 60%.
Tax on the gift at the death rate: (£400,000 − £325,000) × 40% = £30,000. After taper relief: £30,000 × 40% = £12,000.
Additional tax: £12,000 − £15,000 is negative, so nil. No refund of the £15,000.
NRB left for the estate: £325,000 − £400,000 (gross chargeable transfer) is negative, so nil.
Estate: £700,000 less charity £50,000 = £650,000 chargeable.
Charity test: baseline amount = £700,000 less available NRB of nil = £700,000. 10% of £700,000 = £70,000. The £50,000 legacy is lower, so the 36% rate does not apply and the rate stays 40%.
Tax on the estate: £650,000 × 40% = £260,000.

Answer: Additional tax on the gift is nil. IHT on the death estate is £260,000, paid by the personal representatives.

Example 2

Beth, a widow, died on 15 March 2026. Her estate after debts and funeral costs was £960,000, including a house worth £400,000 left to her son. She made no lifetime gifts. Her late husband's bands were fully used, so none is transferred. On 1 February 2024 she received a legacy from her brother's estate. The gross value of the legacy was £150,000, the IHT on it was £30,000 and she received £120,000. Compute the IHT payable on her estate.

Show the solution

No lifetime gifts, so the full NRB of £325,000 is available.
The house goes to a direct descendant, so RNRB is the lower of £400,000 and £175,000 = £175,000. The estate of £960,000 is well below £2,000,000, the level above which the RNRB is tapered by £1 for every £2 of excess, so there is no taper.
Chargeable estate: £960,000 − £325,000 − £175,000 = £460,000.
Tax before relief: £460,000 × 40% = £184,000.
QSR: 1 February 2024 to 15 March 2026 is 2 years 1 month, so the percentage is 60%. This percentage comes from the syllabus table, not from the tax tables.
QSR = 60% × £30,000 × (£120,000 ÷ £150,000) = 60% × £30,000 × 0.8 = £14,400.
IHT payable: £184,000 − £14,400 = £169,600.

Answer: IHT payable on Beth's estate is £169,600.

Exam tips

Set out the lifetime gifts before the estate. Examiners give marks for the order and for NRB used by gifts.
Label every figure. Method marks are lost when a bare number appears with no heading.
Check each gift's date against death. Gifts more than seven years before death drop out entirely.
Use the time period for taper relief and QSR separately. They use different tables.
Add a short professional skills point: advise the executors on who pays and by when, and note the effect of the charity rate on the family.

Practice questions from Inheritance tax: the use of exemptions and reliefs in deferring and minimising inheritance tax liabilities

Death Estate Computation and Reliefs on Death in other exams

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

ACCA Applied SkillsIHT Calculation on Death and the Death Estate

Death Estate Computation and Reliefs on Death: frequently asked questions

Do lifetime gifts or the estate use the nil rate band first?

Lifetime gifts use it first, in date order. The estate gets only what remains. Always compute the gifts before the death estate.

Is taper relief a reduction in the value of a gift?

No. It reduces the tax on the gift, and only if death is more than three years after the gift. It can reduce the tax to the amount already paid, but never creates a refund.

When can I claim quick succession relief?

When the deceased's estate was increased by a chargeable transfer within five years before death. This includes a lifetime gift, a death estate, or a PET that became chargeable. The relief is deducted from the tax on the death estate.

Is everything left to a spouse exempt?

Yes, without limit, unless the deceased was a long-term UK resident and the spouse or civil partner is not. In that case the exemption is capped, so check the figure given in the question.