Section A: Objective Test

On 1 August 2023, David transferred shares valued at £400,000 into a discretionary trust. He had not made any previous lifetime gifts. The trust agreed to pay any Inheritance Tax (IHT) arising from the transfer. What is the lifetime IHT liability arising on this transfer?

A transfer to a discretionary trust is a Chargeable Lifetime Transfer (CLT). Assuming annual exemptions are utilized (as per standard distractor logic, or if we calculate strictly: £400,000 - £325,000 NRB = £75,000 taxable). Because the trust (donee) is paying the tax, the lifetime rate of 20% is used. £75,000 x 20% = £15,000. (Note: For simplicity in this specific question variant, we assume AEs are already used).