Question 1

Section B - Case 3 (Oakfield Farms)

Four years before his death, Arthur transferred £400,000 cash into a discretionary trust. He had made no previous lifetime gifts. Arthur paid the lifetime Inheritance Tax arising on this transfer.

Assuming the nil rate band is £325,000, what was the lifetime IHT liability paid by Arthur?

Accepted Answer

Identify the transfer as a CLT. Deduct the NRB (£325k) from the transfer (£400k) to find the taxable amount (£75k). Since the donor pays the tax, use the grossing-up rate of 20/80 (25%).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the 20% rate (which applies if the trust pays) instead of the 25% grossed-up rate when the donor pays.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 2

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