On 1 May 2023, David transferred £150,000 into a discretionary trust. He had made no previous lifetime gifts. What is the immediate Inheritance Tax (IHT) liability on this transfer?

Answer options:

£0

£30,000

£60,000

£37,500

How to approach this question

Identify the type of transfer (CLT). Check if the value exceeds the available Nil Rate Band (£325,000). If it does not, the tax rate is 0%.

Full Answer

A.£0✓ Correct

A transfer to a discretionary trust is a Chargeable Lifetime Transfer (CLT). However, lifetime IHT is only payable at 20% on the excess over the available Nil Rate Band (£325,000). Since £150,000 is below the NRB, the immediate tax liability is £0.

Common mistakes

Applying the 20% lifetime rate to the entire transfer without deducting the Nil Rate Band.

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Practice the full ACCA TX — Taxation Practice Exam 6

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