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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

Hamid owns a rare painting worth £200,000 on its own. It forms a pair with another painting worth £200,000, and together the pair is worth £500,000. Hamid gives one painting to his nephew and keeps the other. Before the gift Hamid owned both. Assuming no exemptions apply, what is the transfer of value?

The transfer of value is £300,000. IHT measures the loss in the donor's estate: the pair was worth £500,000 before the gift and the retained painting is worth only £200,000 afterwards. Using the value of the painting given away alone would understate the transfer.

  1. A£100,000
  2. B£200,000
  3. C£250,000
  4. D£300,000Correct

Explanation

IHT uses the loss to the donor's estate. Before the gift the pair is worth £500,000. After the gift Hamid holds one painting worth £200,000. The fall is £500,000 - £200,000 = £300,000. Using the £200,000 value of the painting given ignores the related-property effect on the retained item.

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