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

Brenda made a chargeable lifetime transfer of £525,000 to a discretionary trust 5 years and 6 months before her death. She had made no earlier transfers, and the nil rate band was £325,000 throughout. The trustees paid lifetime IHT of £40,000 on the transfer (ignore annual exemptions). Using the ATX-UK tax tables, what additional IHT is payable on her death in respect of this transfer?

No additional IHT is payable. Death tax of £80,000 is reduced by 60% taper relief to £32,000, which is less than the £40,000 lifetime tax already paid. Lifetime tax is not refunded, so the additional liability is nil.

  1. A£0
  2. B£8,000Correct
  3. C£32,000
  4. D£40,000

Explanation

Death tax is (£525,000 - £325,000) x 40% = £80,000. Taper relief for death more than 5 but less than 6 years is 60%, so tax is £80,000 x 40% = £32,000. Lifetime tax of £40,000 already paid exceeds this, so the additional payable is nil, with no repayment. The £8,000 option wrongly compares £32,000 with £40,000 the other way round.

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