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ACCA Applied Skills · Taxation (UK) · Payment of inheritance tax

Lena made a chargeable lifetime transfer of £500,000 to a trust on 1 June 2019, after using no nil rate band previously. Lena died on 10 March 2026, within seven years of the transfer. No other gifts were made and the nil rate band is £325,000 at all relevant dates. Additional death tax arises on the 2019 transfer. Using the death rate and taper relief, what is the additional tax payable on the lifetime transfer, ignoring lifetime tax paid?

The death tax after taper relief is £14,000. The excess over the £325,000 nil rate band is £175,000, taxed at 40% gives £70,000, and as the gift was between six and seven years before death, taper relief of 80% leaves 20% of £70,000.

  1. A£14,000Correct
  2. B£28,000
  3. C£35,000
  4. D£70,000

Explanation

Gift is more than 6 but less than 7 years before death (1 June 2019 to 10 March 2026 is 6 years 9 months), so taper relief is 80%. Tax at death rate: (500,000 - 325,000) x 40% = 70,000. Taper relief 80% leaves 20% of 70,000 = 14,000. Lifetime tax paid at 20% was 35,000 (on the gross excess of 175,000, 20% = 35,000), which exceeds 14,000, so no additional tax is actually payable, but the question asks for the death-rate tax after taper relief of 14,000. The 28,000 option applies 40% instead of 20% remaining and 70,000 ignores taper.

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