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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: administration and payment, including the instalment option

Carl made a chargeable lifetime transfer of £405,000 to a discretionary trust in July 2025, having made no earlier transfers and ignoring annual exemptions. The trust paid the tax. Carl died in February 2028, within seven years of the transfer. The nil rate band at death is £325,000. Who is primarily liable for additional IHT arising on the lifetime transfer because of Carl's death, and how is it computed?

The trustees pay the additional tax. Death occurred within three years, so no taper relief applies. Tax at 40% on the £80,000 excess over the nil rate band is £32,000, less the £16,000 lifetime tax already paid, leaving £16,000 additional IHT payable.

  1. AThe trustees; 40% on the £80,000 above the nil rate band, giving £32,000, less lifetime tax paid of £16,000 (20% of £80,000), additional tax £16,000, with no taper relief as death is less than 3 years after the transferCorrect
  2. BThe personal representatives; 40% on £405,000
  3. CThe trustees; 40% of £80,000 less taper relief of 20%
  4. DThe trustees; additional tax of £32,000 with no credit for the lifetime tax paid

Explanation

Lifetime tax paid by the trust was 20% x (405,000 - 325,000) = £16,000. On death within 3 years, tax at 40% is £32,000, with no taper relief. Credit for the £16,000 paid leaves £16,000 additional, payable by the trustees. Ignoring the credit would give £32,000.

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