ExpertMedium2 marksMultiple Choice
ACCA · Question 06 · Inheritance tax
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?
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?
Answer options:
A.
£0
B.
£15,000
C.
£18,750
D.
£30,000
How to approach this question
Identify the transfer as a Chargeable Lifetime Transfer (CLT) because it is to a discretionary trust. Deduct the Nil Rate Band (£325,000). Apply the correct lifetime tax rate: 20% if the trust (donee) pays, or 25% (20/80) if the donor pays.
Full Answer
B.£15,000✓ Correct
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).
Common mistakes
Treating the transfer as a PET (0% lifetime tax) or using the donor-pays rate of 25%.
Practice the full ACCA TX — Taxation Practice Exam 5
32 questions · hints · full answers · grading
More questions from this exam
Q01Section A: Objective Test
Marcus runs an agricultural consultancy as a sole trader. He submitted...EasyQ02Section A: Objective Test
Helena is employed by a tech startup. During the 2023/24 tax year, her...MediumQ03Section A: Objective Test
EcoDrive Ltd provided its sales director with a new fully electric com...MediumQ04Section A: Objective Test
Julian sold an antique clock (a non-wasting chattel) for £7,200 in Dec...MediumQ05Section A: Objective Test
Sarah bought a house on 1 January 2014 and lived in it as her main res...Medium