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ACCA Applied Skills · Taxation (UK) · Payment of inheritance tax

Priya made a chargeable lifetime transfer of £405,000 to a discretionary trust in June 2025, after annual exemptions. She had made no earlier transfers. The trust bears the inheritance tax. Using the nil rate band of £325,000 and the lifetime rate, what is the lifetime inheritance tax payable?

The tax is £16,000. The transfer exceeds the £325,000 nil rate band by £80,000, and that excess is taxed at the 20% lifetime rate because the trust pays the tax. The nil rate band covers the first £325,000, so nothing is due on it.

  1. A£16,000Correct
  2. B£20,000
  3. C£81,000
  4. D£0

Explanation

The excess over the nil rate band is £405,000 - £325,000 = £80,000. Tax at the lifetime rate of 20% is £16,000 when the trust pays. £81,000 wrongly taxes the full transfer at 20%. £20,000 uses 25%, the grossed-up rate that applies only when the donor pays.

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