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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Grace made a chargeable lifetime transfer of £425,000 to a discretionary trust on 1 June 2018, with no earlier transfers, and the trust paid the lifetime tax. Grace dies on 15 March 2025 (more than 6 but less than 7 years later). Assuming the nil rate band is £325,000 throughout, what is the additional death tax payable on this transfer before considering any lifetime tax paid?

The death tax before any credit for lifetime tax is £8,000. The excess over the nil rate band is £100,000, taxed at 40% to give £40,000, and taper relief for a death more than six but less than seven years later reduces this by 80%.

  1. A£8,000Correct
  2. B£40,000
  3. C£32,000
  4. D£10,000

Explanation

Death tax on the transfer is (£425,000 - £325,000) x 40% = £40,000. Taper relief for more than 6 but less than 7 years is an 80% reduction, so the tax is £40,000 x 20% = £8,000. £32,000 is the amount of relief, not the tax payable. Lifetime tax paid at 20% on £100,000 gross would be £20,000 (on a net basis the grossing-up would differ), but only the death tax before credit is asked here.

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