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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: administration and payment, including the instalment option

Mr Lowe made a gift of £600,000 to his daughter on 1 June 2020, and annual exemptions were already used. He had made no earlier transfers. He died on 20 January 2026. Assume that the nil rate band at the date of the gift was £325,000. What additional IHT is payable by the daughter because of his death?

£44,000. The PET is £275,000 over the nil rate band, producing death-rate tax of £110,000. Death occurred between five and six years after the gift, so taper relief reduces the tax by 60%, leaving £44,000 payable by the donee.

  1. A£22,000
  2. B£44,000Correct
  3. C£66,000
  4. D£110,000

Explanation

The gift was a PET that has become chargeable. The excess over the nil rate band is £600,000 − £325,000 = £275,000, taxed at 40% = £110,000. The gift was made more than five but less than six years before death, so taper relief of 60% applies, giving £110,000 × 40% = £44,000. £66,000 uses a 40% reduction.

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