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

Fiona's executors paid £60,000 of IHT 100 days after the due date. The tax was underpaid and the official underpaid-tax interest rate in the tax tables is 8.50% a year. Using a 365-day year, what is the interest on the late payment, to the nearest pound?

Interest on underpaid IHT is charged at 8.50% a year. For £60,000 paid 100 days late, interest is £60,000 x 8.5% x 100/365, which is approximately £1,397. The official rate of 3.75% and the overpaid rate do not apply to late payment.

  1. A£1,397Correct
  2. B£2,250
  3. C£1,125
  4. D£3,000

Explanation

Interest = £60,000 x 8.50% x 100/365 = £5,100 x 0.27397 = £1,397. Using the 3.75% official rate would give £616, which is wrong. The 3.50% overpaid rate is also inapplicable.

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