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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

Priya made a chargeable lifetime transfer of £405,000 (after all reliefs and exemptions) to a trust in May 2018, with no earlier transfers. She died in July 2024 (more than 6 but less than 7 years later). The nil rate band was £325,000 throughout. What is the additional inheritance tax payable on her death, assuming the trustees paid lifetime tax of £16,000 on the gift?

No additional tax is payable. Tax at 40% on the £80,000 excess is £32,000, reduced by 80% taper relief to £6,400. The £16,000 lifetime tax already paid exceeds that, so nothing more is due and nothing is refunded.

  1. A£0Correct
  2. B£6,400
  3. C£3,200
  4. D£16,000

Explanation

Death tax: (£405,000 - £325,000) = £80,000 x 40% = £32,000. Taper relief of 80% gives £6,400. Lifetime tax paid was £16,000 (£80,000 x 20%), which exceeds £6,400, so additional tax is nil and no refund arises. £6,400 ignores the credit for lifetime tax.

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