ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death
Olivia made a chargeable lifetime transfer of £405,000 to a discretionary trust on 1 May 2020, having made no previous transfers. The trust paid any IHT. Olivia died on 1 November 2025 with an estate leaving no further nil rate band. Using the nil rate band of £325,000 for all periods and a 40% death rate, what is the additional IHT payable on the lifetime transfer due to her death, ignoring annual exemptions?
No additional inheritance tax is payable. Death tax on the £80,000 excess at 40% is £32,000, reduced by 60% taper relief to £12,800, which is less than the £16,000 lifetime tax already paid. There is no repayment, so the extra amount is nil.
- A£0
- B£16,000Correct
- C£32,000
- D£64,000
Explanation
Lifetime tax at 20% on the excess: (405,000 - 325,000) = £80,000, tax £16,000 if the trust paid, so the transfer is the gross figure. Death occurred between 5 and 6 years after the transfer (1 May 2020 to 1 Nov 2025 is 5 years 6 months), giving 60% taper relief. Death tax on £80,000 excess at 40% is £32,000; reduced by 60% is £12,800; less lifetime tax paid of £16,000 gives nil additional. So the answer is £0 under this working.
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