ACCA Applied Skills · Taxation (UK) · Payment of inheritance tax
Rosa made a chargeable lifetime transfer of £425,000 to a discretionary trust on 1 March 2021, after exemptions, with no earlier transfers. She died on 1 June 2025, which is more than 4 but less than 5 years later. Using the Finance Act 2025 rates and taper relief, and ignoring the nil rate band for her estate, what is the death tax on the transfer before deducting lifetime tax paid?
The death tax before deducting lifetime tax is £24,000. The £100,000 excess over the nil rate band is taxed at 40%, giving £40,000, which taper relief of 40% reduces to £24,000.
- A£24,000Correct
- B£40,000
- C£60,000
- D£16,000
Explanation
The nil rate band of £325,000 is available as there were no earlier transfers. The excess is £100,000, taxed at 40% giving £40,000. Taper relief of 40% reduces the tax by £16,000 to £24,000. £40,000 ignores taper relief, and £16,000 is the relief itself.
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