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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the basic principles of computing transfers of value

Arthur died in January 2027 with a death estate of £700,000 after deducting all debts and funeral costs. He made no lifetime transfers, left everything to his adult nephew, and had no spouse or direct descendants. His estate does not include a main residence passing to direct descendants. Using the rates in the ATX-UK tables, what is the inheritance tax payable on his death estate?

The tax is £150,000. With no residence passing to direct descendants, only the £325,000 nil rate band is available. The excess of £375,000 over that band is taxed at the 40% death rate, giving £150,000 of inheritance tax on the estate.

  1. A£150,000Correct
  2. B£200,000
  3. C£130,000
  4. D£280,000

Explanation

The residence nil rate band is unavailable because no residence passes to direct descendants. Only the £325,000 nil rate band applies. Taxable amount is £700,000 - £325,000 = £375,000, taxed at the 40% death rate = £150,000. The £200,000 option wrongly applies the residence nil rate band as if it were available (£700,000 - £500,000 = £200,000 at 40% = £80,000 is not it either), and £280,000 taxes the whole estate at 40%.

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