ACCA Applied Skills · Taxation (UK) · Payment of inheritance tax
HMRC repays £20,000 of inheritance tax that was overpaid, and the repayment is made three months after the overpayment. Using the rates in the TX-UK tax tables, how much interest is paid on the overpaid tax?
The interest is £175. Overpaid tax earns interest at 3.5%, so £20,000 × 3.5% × 3/12 equals £175. Using the 8.5% underpaid rate, the 3.75% official rate or a full year of interest would each give an incorrect figure.
- A£175Correct
- B£188
- C£425
- D£700
Explanation
Overpaid tax earns interest at the overpaid rate of 3.50%. £20,000 × 3.5% × 3/12 = £175. £425 wrongly uses the 8.5% rate for underpaid tax. £188 uses the 3.75% official rate, and £700 is a full year of interest.
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