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ACCA Applied Skills · Taxation (UK) · Payment of inheritance tax

Grace died in January 2026. Her estate was £900,000, including a home worth £400,000 left to her daughter. She made no lifetime gifts and her spouse is alive but she left nothing to the spouse. Assume her estate is below the taper threshold. Using the nil rate band £325,000 and residence nil rate band £175,000, what is the death tax payable?

The tax is £160,000. The £175,000 residence nil rate band is available because the £400,000 home passes to her daughter, so total bands are £500,000. The remaining £400,000 of the estate is taxed at 40%.

  1. A£160,000Correct
  2. B£230,000
  3. C£300,000
  4. D£360,000

Explanation

Total bands are £325,000 + £175,000 = £500,000, the residence band being fully available as the home of £400,000 passes to a direct descendant. Taxable excess is £900,000 - £500,000 = £400,000. At 40% tax is £160,000. £230,000 would use no residence band less error; £360,000 uses only the nil rate band on £900,000 less £0... it is wrong.

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