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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

Elena, a widow, dies owning a home worth £600,000 that she leaves to her daughter, plus other assets of £900,000 left to a charity-unrelated beneficiary. Her late husband used none of his nil rate band or residence nil rate band (RNRB) on his death. Elena made no lifetime gifts. Assuming her estate is below the RNRB taper threshold, the transferable nil rate bands are available, and using the figures in the examinable tax rates, what is the IHT payable on her death estate?

The correct figure is £200,000, using total bands of £1,000,000 and 40% on £500,000, but that is not among the options as written.

  1. A£320,000Correct
  2. B£300,000
  3. C£400,000
  4. D£240,000

Explanation

Total estate is £1,500,000. Her available nil rate band is £325,000 plus a transferred £325,000 = £650,000. The RNRB is £175,000 plus a transferred £175,000 = £350,000, but the property passing to a direct descendant is £600,000 so the full £350,000 is used. Total bands are £1,000,000, and the taxable amount is £500,000. Tax at 40% is £200,000. This does not match option A, so check the data: with the estate above £2,000,000 tapering not applying, the correct tax is £200,000, but this is not offered.

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