ExpertHard2 marksMultiple Choice
ACCA · Question 06 · Inheritance tax
Section A
Mr. Vance owned 600 shares (a 60% holding) in a private unquoted company. The value of a 60% holding is £50 per share. He gifted 200 shares to his daughter. Following the gift, he retained 400 shares (a 40% holding). The value of a 40% holding is £20 per share. The value of a 20% holding (the gifted shares) as a standalone block is £15 per share.
What is the transfer of value for Inheritance Tax (IHT) purposes?
Section A
Mr. Vance owned 600 shares (a 60% holding) in a private unquoted company. The value of a 60% holding is £50 per share. He gifted 200 shares to his daughter. Following the gift, he retained 400 shares (a 40% holding). The value of a 40% holding is £20 per share. The value of a 20% holding (the gifted shares) as a standalone block is £15 per share.
What is the transfer of value for Inheritance Tax (IHT) purposes?
Answer options:
A.
£10,000
B.
£3,000
C.
£22,000
D.
£8,000
How to approach this question
Apply the diminution in value principle: Value of the estate before the transfer MINUS Value of the estate after the transfer.
Full Answer
C.£22,000✓ Correct
For IHT, the value of a lifetime gift is determined by the 'diminution in value' of the donor's estate.
Value of estate before gift (600 shares @ £50) = £30,000.
Value of estate after gift (400 shares @ £20) = £8,000.
Transfer of value = £30,000 - £8,000 = £22,000.
Common mistakes
Valuing the gifted shares in isolation (£15 x 200 = £3,000) rather than looking at the loss to the donor.
Practice the full ACCA TX — Taxation Practice Exam 2
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