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

Mei made a chargeable lifetime transfer of £525,000 to a discretionary trust in May 2018, when she had made no earlier transfers, and the trust paid the tax. She died in April 2026 with a death estate of £700,000 and made no other transfers. Using the nil rate band, rates and taper relief in the ACCA tables and ignoring the annual exemption, how is the 2018 transfer relevant on death?

The 2018 transfer has no effect on death. Mei died more than seven years after the transfer, so it falls outside the seven-year cumulation period, leaves the full nil rate band available, and no additional death tax or taper relief arises on it.

  1. AIt uses the nil rate band first, leaving £125,000 of nil rate band against the estate
  2. BIt has no effect because it is more than 7 years before deathCorrect
  3. CIt uses no nil rate band because tax was paid by the trust
  4. DIt uses the nil rate band, and taper relief reduces the death tax on the 2018 transfer

Explanation

May 2018 to April 2026 is nearly 8 years, which is more than 7 years. The transfer is therefore not cumulated and does not use any nil rate band against the death estate, and no additional tax is charged on it. Options mentioning taper relief or cumulation are wrong because taper only applies to transfers within 7 years of death.

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