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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Which statement about taper relief on a chargeable lifetime transfer is correct under the ATX-UK tax tables?

Taper relief reduces the tax payable on a lifetime transfer where death occurs more than three but less than seven years later, with reductions from 20% to 80%. It does not reduce the transfer's value, so it gives no benefit where the transfer is within the nil rate band.

  1. AIt reduces the tax payable on the transfer where death occurs more than 3 but less than 7 years after it, and has no effect where the transfer falls within the nil rate bandCorrect
  2. BIt reduces the value of the transfer so that more of the nil rate band remains available for later transfers
  3. CIt applies to every lifetime transfer made within seven years of death, with a 20% reduction for death within 3 years
  4. DIt reduces the tax payable only where death occurs more than 5 years after the transfer

Explanation

Taper relief reduces the death tax (not the value) when death is more than 3 but less than 7 years after the transfer, by 20% to 80%. Where the transfer is covered by the nil rate band there is no tax to reduce. The value of the transfer is unchanged, so the nil rate band used by it is not restored.

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