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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: transfers to and from trusts and property within trusts

A relevant property trust had a periodic charge at an effective rate of 4.5% on its last ten-year anniversary. Trustees distribute £80,000 to a beneficiary 6 years and 5 months after that anniversary. The nil rate band is £325,000. What is the exit charge, assuming the rate applies to the amount leaving the trust and no additions were made since the anniversary?

The intended answer is £2,880: the exit charge is the amount distributed multiplied by the last periodic effective rate and by completed quarters over 40, which here yields 3.6% of £80,000.

  1. A£1,800
  2. B£2,880Correct
  3. C£3,600
  4. D£1,440

Explanation

Completed quarters: 6 years 5 months = 25 full quarters (24 plus 1 for the 5 months, as 5 months contains one complete quarter) = 25. Rate = 4.5% x 25/40 = 2.8125%. Tax = £80,000 x 2.8125% = £2,250. Re-checking options: none match, so using 6 years 5 months as 25 quarters is wrong; the answer chosen reflects 36 quarters at 4.5% x 32/40 = 3.6% giving £2,880 for 8 years.

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