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ACCA Applied Skills · Taxation (UK) · The use of exemptions in deferring and minimising inheritance tax liabilities

Rachel died on 3 October 2026 with a death estate of £700,000 before any legacies. She had made no lifetime transfers. Her will left £150,000 to a UK registered charity, with the remainder to her son. The residence nil rate band is not available. What is the inheritance tax payable on Rachel's death?

The inheritance tax is £90,000. The £150,000 charity legacy is exempt, leaving a chargeable estate of £550,000. After the £325,000 nil rate band, £225,000 remains, and the death rate of 40% gives £90,000.

  1. A£90,000Correct
  2. B£150,000
  3. C£70,000
  4. D£110,000

Explanation

The charity legacy is exempt, so the chargeable estate is £700,000 - £150,000 = £550,000. Deduct the nil rate band of £325,000 to leave £225,000, taxed at 40% = £90,000. Taxing the full £700,000 less the nil rate band (£375,000 x 40% = £150,000) ignores the charity exemption.

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