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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Mrs Ibrahim made a gift of £385,000 to a trust, her first transfer, on 1 July 2021. She dies on 30 September 2025 (more than 4 but less than 5 years later). Nil rate band is £325,000. What is the death tax on the transfer after taper relief, before any credit for lifetime tax?

The death tax is £14,400. The transfer exceeds the nil rate band by £60,000, giving £24,000 at 40%, and taper relief of 40% for a death more than four but less than five years later reduces this to 60% of that amount.

  1. A£14,400Correct
  2. B£24,000
  3. C£9,600
  4. D£15,400

Explanation

Excess over the nil rate band = £385,000 - £325,000 = £60,000. Death tax at 40% = £24,000. Taper relief for more than 4 but less than 5 years is 40%, so tax = £24,000 x 60% = £14,400. £9,600 is the relief amount, not the tax.

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