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

Mr Evans died in March 2027. In March 2021 he made a chargeable lifetime transfer of £425,000 (after reliefs), on which lifetime tax was paid by him at 20% on the excess over the nil rate band. His death estate is £200,000. Using the ATX-UK rates and ignoring the residence nil rate band, what is the death tax on the estate?

The death tax is £80,000. The earlier £425,000 transfer was within seven years of death, so it exhausts the £325,000 nil rate band. The whole £200,000 estate is therefore taxable at 40%. Taper relief only reduces tax on the lifetime transfer itself.

  1. A£0
  2. B£80,000Correct
  3. C£40,000
  4. D£100,000

Explanation

The transfer was made more than 5 but less than 6 years before death, so it is within seven years and is cumulated. It uses the whole £325,000 nil rate band, leaving none for the estate. The estate of £200,000 is therefore taxed at 40% = £80,000. Taper relief affects only tax on the lifetime transfer, not the estate.

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