Skip to content

ACCA Strategic Professional · Advanced Taxation (UK) · Taxes applicable to a given situation or course of action and their impact

Priya made a lifetime transfer to a discretionary trust of £525,000 more than seven years ago in no prior period. She dies and the trust gift is irrelevant. Separately, Priya instead considers making a chargeable lifetime transfer of £425,000 now, having made no earlier transfers, with the trustees paying the tax. Using the ATX-UK rates, what is the lifetime IHT payable?

With no earlier transfers, the £325,000 nil rate band covers part of the £425,000 transfer. The £100,000 excess is taxed at the 20% lifetime rate when the trustees pay, giving £20,000. Using 40% would wrongly apply the death rate.

  1. A£20,000Correct
  2. B£85,000
  3. C£100,000
  4. D£40,000

Explanation

The nil rate band is £325,000, so the excess is £425,000 less £325,000 = £100,000. Lifetime rate is 20%, giving £20,000. The £85,000 option taxes the whole amount at 20%. The £40,000 option wrongly uses the death rate.

Did you get it right without looking?

One question tells you little. A timed set on Taxes applicable to a given situation or course of action and their impact shows your real accuracy, how long you take and where you lose marks.

Practise Taxes applicable to a given situation or course of action and their impactFree diagnostic mock

More Taxes applicable to a given situation or course of action and their impact questions