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ACCA Applied Skills · Taxation (UK) · The liabilities arising on chargeable lifetime transfers and on the death of an individual

Nadia made a gift of £60,000 to a discretionary trust and a gift of £40,000 to her friend on 20 August 2025. Which statement about the lifetime inheritance tax treatment of these gifts is correct?

The gift to the discretionary trust is a chargeable lifetime transfer, while the gift to her friend is a potentially exempt transfer. Gifts to individuals are only taxed if the donor dies within seven years.

  1. ABoth gifts are chargeable lifetime transfers taxed at 20% above the nil rate band
  2. BThe gift to the trust is a chargeable lifetime transfer, and the gift to her friend is a potentially exempt transferCorrect
  3. CBoth gifts are potentially exempt transfers with no tax if Nadia survives seven years
  4. DThe gift to the trust is a potentially exempt transfer, and the gift to her friend is a chargeable lifetime transfer

Explanation

A gift to a discretionary trust is immediately chargeable. A gift to an individual is a potentially exempt transfer and becomes chargeable only if the donor dies within seven years. The other options reverse or merge these treatments.

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