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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the basic principles of computing transfers of value

Marcus died in the current tax year. His death estate, after deducting all reliefs and exemptions, was valued at £725,000. He made no lifetime transfers and left everything to his nephew. He owned no residential property, so no residence nil rate band is available. Using the nil rate band and death rate in the ACCA tax tables, what is the inheritance tax payable on the estate?

The inheritance tax is £160,000. The first £325,000 of the estate is covered by the nil rate band, leaving £400,000 taxable. The death rate of 40% applies to that excess because the charge arises on death, not on a lifetime transfer, and no residence nil rate band is available.

  1. A£160,000Correct
  2. B£145,000
  3. C£80,000
  4. D£290,000

Explanation

Nil rate band is £325,000. Excess = £725,000 - £325,000 = £400,000. Tax at the 40% death rate = £160,000. Using the 20% lifetime rate would give £80,000, which is wrong because this is a death estate. Taxing the whole estate at 40% gives £290,000, which ignores the nil rate band.

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