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ACCA Applied Skills · Taxation (UK) · The liabilities arising on chargeable lifetime transfers and on the death of an individual

Marcus made a chargeable lifetime transfer of £405,000 to a discretionary trust in July 2025, after all exemptions. He had made no earlier transfers. The trust pays the lifetime inheritance tax. Using a nil rate band of £325,000 and the 20% lifetime rate, what is the lifetime IHT payable?

The lifetime IHT is £16,000. The transfer exceeds the £325,000 nil rate band by £80,000, and that excess is taxed at the 20% lifetime rate when the trustees pay the tax. The nil rate band shelters the first £325,000.

  1. A£16,000Correct
  2. B£81,000
  3. C£64,000
  4. D£20,000

Explanation

The excess over the nil rate band is £405,000 - £325,000 = £80,000. Tax at the 20% lifetime rate is £80,000 x 20% = £16,000. The £81,000 figure wrongly taxes the whole transfer at 20%; £64,000 uses the 40% death rate on £160,000 incorrectly, which is not a valid method.

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