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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the scope of inheritance tax

Lena sold her shares to her brother for £10,000, though they were worth £60,000. A week earlier she had arranged with her brother that he would then lend £50,000 to her son. Which statement best describes the inheritance tax position?

Associated operations rules can treat linked steps as one transfer of value, so the arrangement is not escaped merely because no single step looks like a gift. Lena's estate falls by £50,000, and that loss is the measure of the transfer.

  1. AThere is no transfer of value because the sale was at arm's length
  2. BAssociated operations rules may combine the linked steps and treat them as a single transfer of value, measured by the donor's loss, even if no single step is a giftCorrect
  3. CThe sale is a potentially exempt transfer only if the son repays the loan within seven years
  4. DThe brother alone is treated as making a transfer of value of £50,000

Explanation

Associated operations are linked operations which may be treated together as one transfer of value. The test is whether the operations are linked, not whether each step alone is a gift. The sale at undervalue also involves a loss to Lena of £50,000. Option A is wrong because the sale was clearly not at arm's length.

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