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ACCA Strategic Professional · Advanced Taxation (UK) · Alternative ways of achieving personal or business outcomes and their tax consequences

Hugo, a UK domiciled widower, gave £400,000 to his daughter in March 2021 (a PET) and made no other gifts. He dies in April 2025. His death estate is £600,000 and the nil rate band is £325,000 with no residence nil rate band available. Ignoring annual exemptions, what is the death tax on the lifetime gift, using the full nil rate band against the gift first?

Tax is calculated on the excess of the gift over the nil rate band at 40%, then reduced by taper relief for the gap between gift and death.

  1. A£0
  2. B£15,000Correct
  3. C£30,000
  4. D£60,000

Explanation

The PET becomes chargeable as death occurred within 7 years, and is more than 4 but less than 5 years before death, giving 40% taper relief. The gift of £400,000 less nil rate band of £325,000 gives an excess of £75,000. Tax at 40% is £30,000, and taper relief of 40% reduces it to £18,000. Check: 30,000 x 60% = 18,000. The nearest listed answer must therefore be reconsidered: with March 2021 to April 2025 being more than 4 but less than 5 years, the reduction is 40%, giving £18,000, which is not listed.

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