Question 1

Section B: Case 2 - Eleanor Vance

Scenario: Eleanor Vance, a wealthy agricultural landowner, made several lifetime transfers before her death on 12 November 2023. On 15 August 2021, she transferred £450,000 of cash into a discretionary trust. Eleanor paid the lifetime Inheritance Tax (IHT) arising on this transfer. She had made no previous lifetime gifts.

Question: What was the lifetime IHT payable by Eleanor on the creation of the discretionary trust in August 2021? (Assume the nil rate band is £325,000 and the annual exemptions for 21/22 and 20/21 are available).

Accepted Answer

Deduct two years of Annual Exemptions (£3,000 each) from the gift. Deduct the Nil Rate Band (£325,000). Since the donor pays the tax, apply the 25% (20/80) rate to the excess.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the 20% rate instead of 25% when the donor pays, or forgetting to deduct the annual exemptions.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 1

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