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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the use of exemptions and reliefs in deferring and minimising inheritance tax liabilities

Grace made a gift of £500,000 to a discretionary trust in May 2018 and no other transfers. She died in July 2025 with an estate of £600,000 all left to her nephew. Assume the nil rate band was £325,000 throughout. What is the additional inheritance tax payable on the lifetime transfer because of her death, ignoring annual exemptions and the residence nil rate band?

No additional tax is payable on the gift. Grace died more than seven years after making the transfer in May 2018, so the transfer is outside the death charge and does not use up the nil rate band.

  1. A£70,000Correct
  2. B£30,000
  3. C£0
  4. D£100,000

Explanation

The gift is a chargeable lifetime transfer made more than 6 but less than 7 years before death (May 2018 to July 2025 is 7 years 2 months, so beyond 7 years). Because death was more than 7 years after the gift, no additional tax arises on death. The CLT was within seven years of nothing, so it drops out of the cumulation. Correct additional tax is £0, not £70,000.

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