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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 lifetime gift of shares in her unquoted trading company to her son, Paul, in June 2022. The gift was a potential exempt transfer and BPR was available at the time. In 2024 Paul sold the shares for cash and spent the proceeds on a holiday home. Grace died in December 2026. Which statement is correct regarding the treatment of the gift on Grace's death?

BPR is lost because Paul no longer owned the shares, or qualifying replacement business property, when Grace died within seven years. The gift is therefore chargeable at its full value, with any available exemptions and nil rate band, and taper relief reduces only the tax payable.

  1. ABPR continues to apply because it was available when the gift was made
  2. BThe gift is not covered by BPR on Grace's death because Paul did not own the shares, or qualifying replacement property, at the time of her death, so the full value is chargeable, with any taper relief applying only to tax payableCorrect
  3. CBPR continues to apply but at 50% because Paul has held the shares for more than two years
  4. DThe gift remains exempt because Grace survived for more than three years

Explanation

Where a potentially exempt transfer becomes chargeable because the donor dies within seven years, BPR is only retained if the donee still owns the original (or qualifying replacement) property at the donor's death, or the donee's earlier death, and it still qualifies. Paul sold and did not reinvest in qualifying business property, so relief is lost. The gift is then chargeable at its value, less annual exemptions and the nil rate band, with taper relief reducing only tax. Surviving more than three years does not make it exempt.

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