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

Meera makes a gift of £200,000 cash to her adult nephew. She has made no previous transfers and no exemptions apply other than those automatically available. What is the inheritance tax treatment at the date of the gift?

A gift from one individual to another individual is a potentially exempt transfer. No inheritance tax is due when it is made, and it becomes chargeable only if the donor dies within seven years. The nil rate band does not make it exempt.

  1. AA potentially exempt transfer, so no inheritance tax is payable at the date of the giftCorrect
  2. BA chargeable lifetime transfer, with tax at 20% on the excess over the nil rate band
  3. CA chargeable lifetime transfer, with tax at 40% on the full amount
  4. DAn exempt transfer because the gift is below the nil rate band of £325,000

Explanation

A gift by an individual to another individual is a potentially exempt transfer. No tax arises at the time of the gift. Tax arises only if the donor dies within seven years. The gift is not a chargeable lifetime transfer, which applies to gifts into most trusts and to companies.

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