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

Tom made a PET of £500,000 in May 2020 and died in May 2026. He made no other transfers. His estate is large and the nil rate band of £325,000 is available at his death. Using the death rate of 40% and the taper relief table, what is the inheritance tax payable on the PET?

The inheritance tax on the PET is £28,000. The excess over the nil rate band is £175,000, taxed at 40% to give £70,000, then reduced by 60% taper relief because death was more than five but less than six years after the gift.

  1. A£70,000
  2. B£28,000Correct
  3. C£14,000
  4. D£56,000

Explanation

Death occurs between 5 and 6 years after the gift, giving taper relief of 60%. The gift above the nil rate band is £500,000 - £325,000 = £175,000. Tax at 40% is £70,000, reduced by 60% to £28,000. £70,000 ignores taper relief. Taper relief reduces the tax, not the value of the gift.

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