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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: the scope of inheritance tax

Raj, UK domiciled, owns 80% of Kite Ltd, valued at £400,000 for the whole holding. A 60% holding would be worth £210,000. Raj gives a 20% holding to his daughter, leaving him with 60%. The gift is made to a person, not a trust. Ignoring exemptions, what is the transfer of value for inheritance tax?

The transfer of value is £190,000. Inheritance tax measures the fall in the donor's estate: the 80% holding worth £400,000 before, less the retained 60% holding worth £210,000 after, not simply the value of the shares given away.

  1. A£100,000
  2. B£190,000Correct
  3. C£210,000
  4. D£400,000

Explanation

The transfer of value is the loss to the donor's estate: value before less value after. Before: £400,000 for the 80% holding. After: 60% holding worth £210,000. Loss = £400,000 - £210,000 = £190,000. Using 20% of the 80% holding value (£100,000) ignores the related fall in value of the retained shares.

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