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

Nadia gives her daughter a gift of £400,000 cash in lifetime, with no exemptions available. Which statement is correct?

The gift is a potentially exempt transfer because it is made by an individual to another individual. No tax arises when it is made, and it becomes chargeable only if Nadia dies within seven years. Any tax then is at death rates, with possible taper relief.

  1. AThe gift is a PET and becomes chargeable only if Nadia dies within seven years of making itCorrect
  2. BThe gift is immediately chargeable at 20% on the excess over £325,000
  3. CThe gift is exempt because it is made to a family member
  4. DThe gift is a PET and is taxed at 40% at the date of gift

Explanation

A lifetime gift by an individual to another individual is a potentially exempt transfer. No tax is due at the time of the gift. It becomes chargeable only if the donor dies within seven years, and is then taxed at death rates (with taper relief if applicable). Being a family member does not give exemption.

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