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

Following a death, the executors repay an IHT underpayment of £12,000 that was 6 months late, because the estate's value had been understated through carelessness. Using the assumed rate on underpaid tax, how much interest is due on the £12,000, ignoring any penalty?

Interest is £510. The underpaid tax rate is 8.50%, so £12,000 × 8.5% × 6/12 gives £510. Using the full year would give £1,020, which ignores that the tax was only six months late.

  1. A£360
  2. B£420
  3. C£510Correct
  4. D£1,020

Explanation

Interest is charged at the underpaid tax rate of 8.50%. £12,000 × 8.5% × 6/12 = £510. £360 wrongly uses 6%, and £420 uses the 3.50% overpaid rate (£12,000 × 3.5% × 6/12 = £210 would be the true figure, so £420 is simply wrong). £1,020 forgets to apply the 6/12 time apportionment.

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