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ACCA Strategic Professional · Advanced Taxation (UK) · Taxes applicable to a given situation or course of action and their impact

Chen died in 2025/26 with a chargeable estate and made a lifetime transfer of £525,000 to a discretionary trust exactly five years and six months before death. He had made no earlier transfers, and the nil rate band is £325,000. Ignoring annual exemptions, lifetime tax paid by the trustees and the residence nil rate band, which statement about additional death tax on that transfer is correct?

Death tax before taper relief is £80,000, being 40% of the £200,000 excess over the £325,000 nil rate band. Death between five and six years later gives 60% taper relief, reducing the charge to £32,000.

  1. ADeath tax is £80,000 before taper relief, and taper relief of 60% reduces it to £32,000Correct
  2. BDeath tax is £200,000 before any reduction, because the transfer exceeds £325,000
  3. CDeath tax is £80,000 before taper relief, and taper relief of 40% reduces it to £48,000
  4. DNo further tax is due because the transfer was more than five years before death

Explanation

The excess over the nil rate band is £200,000. Death rate tax is 40%, giving £80,000. Death occurred more than 5 but less than 6 years later, so taper relief is 60%, leaving £32,000 before deducting lifetime tax paid, which is ignored here. The 40% reduction applies only to 4 to 5 years.

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